Major traditional gambling powerhouses team up to pressure Congress, and the nationwide sports prediction market—worth trillions—could face a full ban in the United States

The American Gaming Association and other organizations jointly call on Congress to restrict the development of sports betting prediction markets. They point out that platforms like Kalshi offer products similar to gambling through event contracts, involving regulatory arbitrage and affecting state governments' taxing authority.

Gambling industry exerts collective pressure on Congress, prediction markets become regulatory focus

Several American gambling industry organizations recently jointly addressed Congress, demanding restrictions on the development of sports event prediction markets, and hoping to include relevant regulations in the discussion of the "CLARITY Act," a bill concerning the structure of crypto markets. This controversy has brought the competition between prediction markets and traditional sports betting into the spotlight.

Image source: Semafor Several American gambling industry organizations recently jointly addressed Congress, demanding restrictions on the development of sports event prediction markets

Participants in the petition include the American Gaming Association (AGA), multiple state-level gambling regulatory agencies, and large gambling companies. They believe that the rapidly emerging prediction market platforms in recent years are offering products highly similar to sports betting but are not subject to the same level of regulation and tax requirements.

One core issue of the controversy is the prediction market platform Kalshi, regulated by the U.S. Commodity Futures Trading Commission (CFTC). The platform uses event contracts, allowing users to trade on the outcomes of sporting events, which has attracted significant market capital inflows.

Gambling industry questions regulatory arbitrage, state authority faces challenges

The gambling industry argues that sports event contracts and traditional sports betting are very similar in economic effect, but the regulatory frameworks applicable to them are completely different. Traditional gambling companies must obtain state licenses, pay gambling taxes, and comply with consumer protection regulations, whereas prediction market platforms operate under federal regulation.

Related groups point out that this situation has created regulatory arbitrage and may weaken the authority of states over gambling markets. As the U.S. sports betting market continues to grow, state governments are increasingly focused on taxation and regulatory control.

In recent years, trading volume in sports prediction markets has surged, especially during major events like the World Cup, Super Bowl, and U.S. presidential elections, with trading activity hitting new highs, further intensifying competition within the gambling industry.

Kalshi and supporters argue that event contracts are financial products

In response to criticism, Kalshi and its supporters believe that event contracts are fundamentally legitimate financial instruments, not traditional gambling activities. Supporters point out that prediction markets can reflect market consensus through price mechanisms and provide risk management and information discovery functions.

Some scholars and financial market professionals believe that prediction markets can improve market efficiency and help companies, research institutions, and investors quickly grasp the probability changes of specific events.

Beyond sports events, current prediction markets cover a variety of topics including political elections, economic data, interest rate decisions, and corporate events, gradually forming a new fintech industry.

CLARITY Act becomes a battleground, market rules may be rewritten

The currently debated "CLARITY Act" in Congress was originally focused on the regulatory framework for crypto asset markets, but the gambling industry hopes to use this opportunity to restrict the development of sports event contracts.

Behind this controversy is actually a division of authority between federal regulators and state governments. Gambling regulators want to maintain control over the sports betting market, while prediction market operators argue that these products should be regulated uniformly by the CFTC.

As platforms like Kalshi and Polymarket continue to expand their influence, whether the U.S. will classify sports event contracts as financial products or gambling activities is gradually becoming a crucial dividing line that could shape the future development of prediction markets.