NextFin News - A bipartisan coalition in the U.S. Senate moved on Monday to dismantle the regulatory loophole that has allowed prediction markets to function as a shadow sports-betting industry. Senators Adam Schiff, a California Democrat, and John Curtis, a Utah Republican, introduced the "Prediction Markets Are Gambling Act," a bill specifically designed to strip platforms like Kalshi and Polymarket of their ability to offer wagers on athletic competitions and casino-style events. The legislation marks the most significant federal attempt to date to reclassify "event contracts" as gambling, potentially ending a multi-billion dollar experiment in federally regulated sports speculation.
The timing of the bill is no accident. It follows a year in which Kalshi’s Super Bowl trading volume skyrocketed to over $1 billion, a staggering 2,700% increase from the previous year. While traditional sportsbooks like FanDuel and DraftKings operate under a patchwork of state-by-state licenses and heavy tax burdens, Kalshi and Polymarket have operated under the oversight of the Commodity Futures Trading Commission (CFTC). By framing their bets as "derivatives" rather than "wagers," these platforms have effectively bypassed state bans and consumer protection mandates that govern the broader gambling industry. Schiff’s argument is blunt: a contract on the outcome of a game is a bet, regardless of whether it is traded on a digital exchange or placed at a window in Las Vegas.
This legislative push arrives as the prediction market industry faces a coordinated legal assault from state regulators. Just last week, Arizona Attorney General Kristin Mayes filed 20 criminal misdemeanor charges against Kalshi, the first of their kind in the United States. Meanwhile, Nevada and New York have issued cease-and-desist orders, arguing that these platforms are "masquerading" as financial markets to evade the "police powers" traditionally held by states to regulate vice. The Schiff-Curtis bill would provide the federal clarity these states have been seeking, explicitly removing sports and "gaming" from the CFTC’s jurisdiction and handing control back to state gaming commissions.
The economic stakes are immense. Prediction markets handled more than $40 billion in volume over the past year, fueled by a growing appetite for "event-driven" trading. Kalshi has argued that the bill is a protectionist measure backed by the traditional casino lobby, which views the low-fee, exchange-based model of prediction markets as an existential threat. Elisabeth Diana, a spokesperson for Kalshi, warned that banning these regulated U.S. platforms would simply drive American liquidity toward offshore, unregulated sites like Polymarket’s crypto-based international arm, where oversight is non-existent and consumer protections are a fiction.
However, the political momentum has shifted toward restriction. The surge in gambling addiction—highlighted by a 61% increase in searches for help since the 2018 Supreme Court decision legalizing sports betting—has created an environment where even pro-market Republicans like Curtis are wary of "addictive" financial products. The bill also addresses integrity concerns following a string of scandals, including the 2024 Jontay Porter NBA betting ban and recent allegations involving MLB pitcher Emmanuel Clase. Critics argue that when sports bets are treated as commodities, the risk of market manipulation and insider trading increases, as the CFTC is ill-equipped to monitor the locker-room dynamics that influence game outcomes.
If passed, the act would force a radical pivot for the prediction market industry. Deprived of the high-volume sports and entertainment categories, platforms would be forced to rely on more "traditional" event contracts, such as economic data releases, Fed interest rate decisions, and political outcomes—though even the latter remains under heavy legal fire. The era of the "everything market" is facing its first real wall of federal resistance. For Kalshi and Polymarket, the bet is no longer on who wins the game, but on whether they can survive a rare moment of bipartisan consensus in Washington.
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