--- title: Legal Sports Betting Stops Growing as Bettors Move to Prediction Markets description: US legal sportsbook handle is flat for the first time since 2018 as bettors shift to CFTC-regulated prediction markets, and the courts are split on the rules. author: Darie Nani (Editor-in-Chief) updated: 2026-09-04T19:18:40.492Z canonical: https://www.sovereignmagazine.com/article/legal-sports-betting-flat-prediction-markets-253513 image: https://cdn.nanimediahouse.com/sports-betting-prediction-markets-253513.webp categories: Markets content_type: Analysis region: United States publication: Sovereign Magazine schema_type: Article --- Americans will legally wager about $29.5 billion on the 2026 NFL season through regulated commercial sportsbooks, essentially unchanged from last season's $29.4 billion, according to estimates from the American Gaming Association. It is the first time legal handle has stopped growing since the Supreme Court struck down the federal sports betting ban in 2018, and the industry group says it knows where the money is going: to prediction markets that take sports wagers as financial contracts and sit outside state gambling law. The companies and states built on the model of the past seven years planned around growth that has now stopped. State-licensed sportsbooks pay gaming taxes and answer to gambling regulators in each jurisdiction. Prediction markets such as Kalshi and Polymarket list sports outcomes as event contracts overseen by a federal agency, and in doing so they operate outside the frameworks in the 40 jurisdictions where sports betting is legal and, the AGA says, bypass the bans in the 11 states that have not legalized it. ## The Volume Has Moved Fast The shift is recent and steep. Trading volume on prediction markets rose from under $5 billion a month in September 2025 to about $24 billion a month by April 2026, according to [Pew Research Center](https://www.pewresearch.org/short-reads/2026/05/27/trading-volume-on-prediction-markets-has-soared-in-recent-months/). Overall prediction-market volume reached roughly $111 billion in the second quarter of 2026, with sports making up the large majority of Kalshi's activity. The AGA estimates that sports bets account for about 80 percent of Kalshi's volume, and that $5.1 billion of that came from users aged 18 to 20, below the legal betting age in 35 of the 40 jurisdictions that license sportsbooks. The group also estimates that prediction markets have siphoned more than $1.3 billion in potential state gaming tax revenue since 2025. Sports betting generates a few billion dollars a year in state taxes, so a diversion of that size cuts into state budgets that came to count on the handle. ## The Industry Group Calls It Backdoor Betting The AGA frames the migration as gambling in disguise. "Since the Supreme Court struck down the federal sports betting ban in 2018, legalized sports betting had seen tremendous growth," says AGA president and CEO Bill Miller. "But this year is different. Since the widespread launch of backdoor sports betting on so-called 'prediction markets,' the growth of legal handle has stalled." Miller argues the venues are also misleading the people using them. > "Prediction markets are dangerously misleading consumers by marketing sports wagers as an investment, rather than what it is: entertainment." > — Bill Miller, President and CEO, American Gaming Association The prediction markets reject the premise. They say they are federally regulated financial products, not gambling, and that their sports contracts are supervised by the Commodity Futures Trading Commission rather than state gambling regulators. CFTC Chair Michael Selig has said prediction markets and sportsbooks are "two separate things." The two sides are not arguing over the same numbers so much as over what the activity is. ## Courts Split Over Who Regulates the Contracts That question is now in front of the federal courts, with conflicting answers. A divided Third Circuit held in April 2026 that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over sports-related event contracts, [preempting state gambling laws](https://www.paulweiss.com/insights/client-memos/a-divided-third-circuit-holds-that-the-cftc-has-exclusive-jurisdiction-over-sports-related-event-contracts). A Ninth Circuit panel ruled the other way in August 2026, leaving a circuit split that many expect the Supreme Court to resolve. States are pressing their side in the meantime. More than 40 states wrote to the CFTC in July 2026 asserting their authority over sports prediction markets. When New York sued, the CFTC ordered Kalshi to keep operating there. Until the split is settled, the same sports contract can be a lawful federal financial product under one appeals court and a gambling product subject to state law under another. ## DraftKings and FanDuel Are Joining Rather Than Fighting The largest sportsbook operators are not waiting for the courts. DraftKings and FanDuel have each moved into prediction markets in 2026 rather than cede the ground, hedging against the possibility that the CFTC-supervised model, not the state-licensed one, becomes where sports wagering lives. Some of the plateau would have come regardless of prediction markets. The US sports-betting market is maturing: 38 to 40 states are already licensed, customer-acquisition costs are rising, and handles were leveling off on their own. What the AGA's estimate captures is a maturing market meeting a fast-growing, differently regulated rival at the same moment, and the rules that separate the two are still unsettled. ## FAQ **Q: What is the difference between a prediction market and a sportsbook?** A sportsbook takes a wager against odds it sets and pays out on the result. A prediction market lists an outcome as a tradable contract whose price moves with demand, so users buy and sell positions on an event the way they would a financial instrument. On sports outcomes the practical experience can look similar, which is the heart of the current dispute. **Q: Are prediction markets legal for sports betting?** It is contested and unsettled. Prediction markets operate nationally as CFTC-regulated venues, including in states that have not legalized sports betting. A divided Third Circuit backed federal jurisdiction in April 2026 while a Ninth Circuit panel ruled the other way in August 2026, and the resulting split is widely expected to reach the Supreme Court. **Q: Why are prediction markets regulated by the CFTC instead of state gambling regulators?** They list sports outcomes as event contracts under the Commodity Exchange Act, which the CFTC administers. The Third Circuit held that this gives the CFTC exclusive jurisdiction and preempts state gambling laws. States dispute that reading, and more than 40 of them wrote to the CFTC in July 2026 asserting their own authority. **Q: Are prediction markets gambling?** That is the fight. The American Gaming Association calls sports contracts on these venues backdoor sports betting and says they should answer to gambling rules. The markets, and CFTC Chair Michael Selig, say they are financial products distinct from sportsbooks. No court has settled the label.