Senators Adam Schiff (D-CA) and John Curtis (R-UT) introduced the Prediction Markets Are Gambling Act this Monday, a legislative move aimed at prohibiting prediction platforms like Kalshi and Polymarket from offering sports wagering or casino-style games. Unlike traditional platforms such as FanDuel or DraftKings, which operate under state-specific mandates, these prediction markets currently function under federal Commodity Futures Trading Commission (CFTC) oversight.
Federal Oversight vs. State Regulation
The proposed legislation seeks to close a regulatory gap that allows prediction markets to bypass state-level gambling laws. Senator Schiff argues that these platforms are essentially disguising sports bets under the label of “prediction contracts,” thereby operating in violation of both state and federal statutes.
The urgency behind the bill stems from the explosive growth of the gambling industry. Since the Supreme Court’s 2018 decision to allow state-legalized sports betting, the market has ballooned from $4.9 billion in 2017 to over $121.1 billion in 2023. Critics point to the rising risks of gambling addiction, noting that studies from UC San Diego indicate a 61% spike in help-seeking behavior for gambling issues following the proliferation of online sportsbooks.
The Battle Over Market Competition
Kalshi has pushed back against the bill, labeling it an anti-competitive maneuver. A spokesperson for the platform, Elisabeth Diana, stated that the legislation is likely motivated by established casino interests seeking to protect their monopolies rather than genuine consumer protection. Furthermore, Kalshi warns that such restrictions could force users toward unregulated, offshore prediction markets.
The economic impact of these platforms is significant; for example, Kalshi’s trading volume during the most recent Super Bowl surpassed $1 billion, marking a 2700% year-over-year increase. Currently, Kalshi faces separate legal hurdles, including a temporary ban in Nevada and ongoing criminal charges in Arizona.
Addressing Insider Trading and Market Integrity
In a preemptive effort to bolster integrity, both Kalshi and Polymarket announced stricter screening protocols this Monday. Kalshi confirmed it is implementing new features to prevent insider trading, including blocking known athletes, officials, and league employees from participating in markets associated with their professional activities. This follows high-profile incidents involving individuals using non-public information to influence betting outcomes, such as the recent controversy involving an editor for YouTube star MrBeast.
Similarly, Polymarket updated its platform rules to explicitly prohibit wagering based on stolen confidential information or illegal tips, and barred users from betting on events they are in a position to influence. These measures reflect the growing pressure on prediction markets to adopt the same rigorous compliance standards currently required of traditional sportsbooks.