When I last wrote about prediction markets, they looked to be heading toward a single legal showdown.
States were suing to shut down sports contracts. Courts were splitting over whether those contracts were federally regulated swaps or ordinary wagers.
All that pressure remains, and tomorrow brings oral arguments in two Sixth Circuit appeals, another step toward what I believe is a preordained Supreme Court fight.
What's changed is the incumbents. The sportsbooks once threatened by prediction markets have spent the past year building prediction-market businesses of their own, emboldened by federal support and Kalshi's growth.
Regulators now face national brands using federal exchanges to offer sports contracts in states where their sportsbooks cannot operate, and openly saying so. That gives the state-led side its strongest argument yet that this is merely jurisdictional arbitrage.
Sportsbooks Bought Their Way In
Last fall, DraftKings bought CFTC-designated exchange Railbird. By year-end, it had launched DraftKings Predictions through CME while preparing to add Railbird's markets. DraftKings said at launch that sports contracts would be available in states like California, Florida, Georgia, and Texas.
FanDuel launched FanDuel Predicts around the same time through CME. Earlier this summer, it added contracts from Crypto.com's federally regulated exchange.
Fanatics also launched at the end of last year through Crypto.com. On Monday, it agreed to acquire Water Street Labs and CX Clearinghouse from BGC, giving it its own federally registered exchange and clearinghouse. Fanatics Markets already operates in states including California, Texas, and Florida.
FanDuel has been the most direct about what this is. It explicitly designed the product to offer sports contracts where online sports betting is not legal, and said it would withdraw them as those states legalize sportsbooks. The federal exchange is a placeholder until the state license arrives.
Where mobile sports betting exists, they keep operating sportsbooks under state law. Where betting is prohibited or limited, these federal exchanges let them offer nearly the same product to many of the same customers, forcing states to prove they can stop it. As a result, sportsbooks can now provide the same national reach Kalshi and Polymarket are building.
The Court Map Is Getting Messier
When I first wrote about Supreme Court inevitability in May, the federal side led in New Jersey and Tennessee, while states led in Nevada, Maryland, Massachusetts, and Ohio. Since then, Arizona, Minnesota, Michigan, New York, and Washington have cast new votes, putting the score at 4–7.