The US gaming industry is projecting another year of revenue expansion in 2025, but the conversation has shifted. Prediction markets, once a niche corner of the broader wagering ecosystem, now occupy a central and increasingly contentious position in regulatory debates, operator strategies, and legislative agendas across multiple states. What was a footnote two years ago has become, arguably, the defining fault line in American gaming policy.
What’s Driving the US Gaming Sector’s 2025 Outlook
Before unpacking the specifics, the broader trajectory deserves framing. The American commercial gaming market has posted record or near-record revenues for several consecutive years, buoyed by the post-PASPA expansion of legal sports betting and the steady maturation of iGaming in states like New Jersey, Michigan, and Pennsylvania. The 2025 outlook builds on that momentum, though the growth drivers are shifting in ways that matter for operators, investors, and state treasuries alike.
- Prediction markets have moved from peripheral curiosity to regulatory flashpoint, with platforms like Kalshi actively pushing to offer contracts on political and economic events in direct competition with traditional sportsbooks
- State legislatures face mounting pressure to clarify whether event-based contracts fall under gaming law, securities regulation, or something else entirely
- Sports betting handle growth is decelerating in mature markets, pushing operators to seek new verticals and product categories
- The regulatory posture of the CFTC toward prediction markets remains unsettled after a federal court ruling in 2023 opened the door wider than many anticipated
- iGaming legalization continues its slow crawl, with fewer than ten states currently offering full online casino products
Prediction Markets: A Regulatory Grey Zone That Won’t Stay Grey
The rise of prediction markets in the US traces back to a specific legal and commercial sequence. Kalshi, a CFTC-regulated exchange, won a pivotal court battle in late 2023 that allowed it to list event contracts tied to congressional elections. That ruling didn’t just open a product category. It cracked open a jurisdictional question that regulators at the state and federal level are still scrambling to answer.
Traditional gaming regulators view prediction markets with suspicion (a distinction regulators have been slow to enforce), largely because these platforms operate outside state gaming commission oversight. Yet the products themselves look, to a consumer, remarkably similar to sports wagers. You pick an outcome. You risk capital. You get paid if you’re right.
Still, the legal architecture underneath is fundamentally different. Prediction market contracts are structured as binary options or event derivatives, regulated under the Commodity Exchange Act rather than state gaming statutes. That gap creates real tension. Sportsbook operators licensed under strict state frameworks argue they face an uneven playing field when prediction platforms can offer similar products without equivalent compliance burdens.
Whether that tension resolves through federal legislation, state-level action, or further litigation remains one of the most consequential open questions in US gaming.
How Operators Are Responding
Major operators aren’t standing still. DraftKings has publicly explored the prediction market space, and FanDuel’s parent company Flutter Entertainment has signaled interest in adjacent product innovation. The strategic calculus is straightforward: if prediction markets capture consumer attention and wallet share, incumbents need a presence or risk ceding ground to fintech-native competitors.
But entering the space isn’t simple. Operators with existing state gaming licenses must navigate a thicket of regulatory relationships. Launching a prediction market product could jeopardize standing with state regulators who view such platforms as competitors to their own licensed ecosystems. That’s not a hypothetical risk.
Revenue Diversification Beyond Sports Betting
The broader pattern here extends past prediction markets. With sports betting revenue growth flattening in states that legalized early, operators are investing heavily in iGaming, live dealer products, and loyalty ecosystem integration. The table below illustrates how revenue mix is shifting across the sector:
| Revenue Category | 2023 Share (Est.) | 2025 Projected Share | Growth Trend |
|---|---|---|---|
| Sports Betting | 38% | 35% | Decelerating |
| iGaming / Online Casino | 22% | 27% | Accelerating in newly legal states |
| Land-Based Casino | 34% | 30% | Stable but declining share |
| Prediction Markets & Event Contracts | <1% | 2–4% | Rapid but from a small base, regulatory dependent |
The Regulatory Chessboard: Federal vs. State Authority
At the federal level, the CFTC’s evolving stance on event contracts has created a patchwork of uncertainty. The commission approved certain non-political event contracts while maintaining restrictions on others, and congressional interest in codifying rules has produced draft legislation but no enacted law. Meanwhile, state attorneys general in at least three jurisdictions have issued informal guidance questioning whether prediction market platforms operating within their borders require state-level authorization.
This jurisdictional overlap isn’t academic. It determines who collects tax revenue, who enforces consumer protections, and who bears liability when things go wrong. And in a sector where state tax receipts from gaming now exceed $15 billion annually across all categories, the financial stakes for governments are substantial.
What This Means for Industry Stakeholders
For executives navigating 2025, the prediction market question isn’t abstract. It touches product strategy, compliance architecture, government affairs priorities, and M&A screening criteria. Operators evaluating acquisitions or partnerships in the prediction space must weigh not just the commercial upside but the regulatory tail risk, which at this stage remains genuinely hard to quantify.
Investors, for their part, should watch two signals closely: whether any state passes legislation explicitly classifying prediction markets under its gaming code, and whether the CFTC issues further no-action letters or formal rules that expand or restrict the product set available to platforms like Kalshi’s regulated prediction exchange.
Frequently Asked Questions
Are prediction markets legal in the United States?
Certain prediction market platforms operate legally under CFTC oversight as designated contract markets. However, the legality of specific contract types, particularly those tied to elections, remains contested and varies by jurisdiction. No blanket federal authorization exists.
How do prediction markets differ from sports betting?
Structurally, prediction markets use binary event contracts regulated under commodities law, while sports betting falls under state gaming statutes. To the end user, the experience can feel similar. The regulatory and tax treatment, however, diverges sharply.
Will prediction markets affect state gaming tax revenue?
That depends entirely on how regulators classify and tax these products. If prediction markets grow without state-level taxation, they could divert consumer spending from taxed gaming products. Some state officials have already flagged this concern publicly.
Which states are most likely to regulate prediction markets next?
States with mature gaming regulatory frameworks and active legislative sessions on gaming expansion, including New Jersey, Nevada, and Illinois, are the likeliest candidates. But no state has yet enacted a comprehensive prediction market statute.
