ARE PREDICTION MARKETS GAMBLING? THE LEGAL & PRACTICAL ANSWER

Are prediction markets considered gambling?

Under federal law, CFTC-regulated prediction markets like Kalshi and Polymarket are commodity derivative exchanges, not gambling operators. For sports contracts it is now contested: in 2026 federal appeals courts split on whether states can treat them as gambling, and the Supreme Court has been asked to decide.

TL;DR:

Legally, CFTC-regulated prediction markets like Kalshi and Polymarket are classified as commodity derivatives, not gambling. Practically, they share features with both trading and betting — the key differences are the exchange model (no house) and CFTC oversight, while their tax treatment is still unsettled.

The legal answer

Under US federal law, CFTC-regulated prediction markets like Kalshi and Polymarket are classified as commodity derivative exchanges, not gambling operators. They operate as Designated Contract Markets (DCMs) under the Commodity Exchange Act — the same regulatory framework as CME futures.

In 2024 a federal court ruled that Kalshi could list congressional election contracts over the CFTC's objections. Sports contracts are a separate question, and there the courts have since split (below).

Polymarket: deposit $10, get a $25 trading bonus with code WIN

18+ Only. Restrictions and eligibility requirements apply. Not available in all jurisdictions. Trading is risky. 100% loss can occur. See polymarket.com/tos for more information. The Polymarket US App serves as an independent software provider and affiliate of Polymarket US and Polymarket Clearing, the CFTC-regulated exchange and clearing organization.

Can states treat sports prediction markets as gambling?

Federal appeals courts disagree, and the Supreme Court has been asked to decide. On April 6, 2026 the Third Circuit ruled 2-1 that Kalshi's sports event contracts are likely “swaps” under federal commodities law, so New Jersey likely can't enforce its gambling laws against them. On August 28, 2026 the Ninth Circuit ruled unanimously the other way for Nevada (in cases involving Kalshi, Robinhood and Crypto.com), calling the contracts “sports gambling, regardless of whether Kalshi calls them swaps.” On September 25, 2026 the Sixth Circuit agreed with Nevada's side for Ohio and Tennessee. Kalshi asked the full Sixth Circuit to rehear the case on October 9, 2026; the court has not ruled. All three are preliminary rulings, not final judgments. Three petitions are on the Supreme Court's docket — New Jersey (No. 26-299), Robinhood (No. 26-338) and Crypto.com (No. 26-344); none has been granted. Responses are due November 9, 2026 (Kalshi) and November 13 and 16, 2026 (Nevada; both extended in October).

What it means for you: the cases decide whether states can enforce their gaming laws against the platforms, not whether you personally broke a law by trading. The practical effect is on availability: in states that won, sports contracts can be restricted or switched off, so check the app's current state list before you deposit. Non-sports markets (economics, weather, most politics) were not the focus of these rulings. This is general information, not legal advice. Sources: Ninth Circuit opinion, Sixth Circuit opinion.

Why this classification matters

Three concrete consequences: (1) they operate across most of the US under federal rules, although several states are fighting sports contracts in court, so sports availability can differ by state; (2) winnings are taxable, but the IRS hasn't yet said whether they count as gambling income, capital gains or Section 1256 contracts; (3) the exchanges are regulated by the CFTC, not state gaming commissions.

Same activity (predicting outcomes), different legal box (derivatives, not gambling).

Where prediction markets and gambling overlap

Practically, the experience can feel like betting: you're risking money on an uncertain outcome. The differences that matter:

• Exchange model — you trade against other users, not a house with built-in margin
• No house margin — your cost is the spread plus each venue's trading fee
• Resolvable in real money — both winning and losing positions settle to cash via regulated channels
• Tax treatment — unsettled: the IRS hasn't issued guidance, so profits may be treated as gambling income, capital gains or Section 1256 contracts (see our prediction markets tax guide)

Are offshore prediction markets gambling?

Offshore venues without CFTC oversight don't enjoy the derivative classification. Using them as a US resident is a legal gray area at best and may be treated as unlicensed gambling under state law. Stick to regulated US venues.

Practical takeaway

If you're trading on Kalshi or Polymarket, you're trading derivatives — legally, financially, and operationally. If you're treating it like a slot machine, the platform doesn't care, but you'll burn capital fast. Read our strategies guide for the disciplined approach.

← All guides