Prediction Markets: The Regulatory Net Closes

The fastest-growing corner of American finance just got a lot more complicated.

Bipartisan Senate legislation introduced last week would ban prediction markets from offering sports-related contracts — the first federal bill targeting platforms like Kalshi and Polymarket directly. Democratic Senator Adam Schiff and Republican Senator John Curtis are co-sponsoring the bill, which would also prohibit casino-style games on these platforms.

Sports contracts represent more than half of Kalshi's total volume. Polymarket's US beta launched sports-first — it's the category the CFTC approved first — while its international platform covering politics, crypto and geopolitics remains technically off-limits to American users.

The federal bill is only the latest pressure point. Arizona filed criminal charges against Kalshi for operating an illegal gambling business — charges Kalshi calls meritless and will fight in court. In Nevada, Kalshi has already temporarily halted sports, entertainment and election contracts under a court order. States that regulate and tax traditional sports betting have been fighting prediction markets aggressively, and they are winning individual battles even as the federal picture remains unresolved.

Both platforms moved to get ahead of the scrutiny this week, introducing new insider trading rules — Kalshi barring political candidates and people involved in sports from trading, Polymarket prohibiting anyone who can influence a market's outcome. Whether these moves calm regulators or arrive too late to matter is an open question.

The subplot worth watching: Fortune reports that the CEOs of both Kalshi and Polymarket are backing the same venture fund raising up to $35 million to invest in prediction market startups. Two companies fighting each other fiercely in court are apparently aligned enough to invest together in the sector's future. That either signals enormous confidence that prediction markets survive this regulatory moment — or it is a very well-timed hedge.