Sportsbooks weigh regulatory risks of prediction markets
US sports betting operators are remaining on the sidelines of the predictions market industry, concerned that it could threaten their state gambling licenses, Bloomberg reports.
Caesars Entertainment told investors it is monitoring the space but not immediately participating in prediction markets. CEO Tom Reed told Bloomberg, “we will not put any of our licenses at risk.”
MGM Resorts boss Bill Hornbuckle shared the view, telling Bloomberg, “for decades, the gaming industry has been highly regulated at the state level. This intense scrutiny has been essential to ensuring the integrity of the gaming industry.”
This comes amid the rise of exchanges like Kalshi and Polymarket, where users can trade event contracts on outcomes from sports to politics. These firms say they fall under the federal Commodity Futures Trading Commission rather than state gambling regulators, a stance that’s drawn scrutiny.
DraftKings’ stock has tumbled more than a third since August as prediction contracts gain traction. Nevada regulators have warned that taking part in such markets, even across state lines, could endanger licenses.
The American Gaming Association also has urged that prediction markets remain under state control.
Court battles are underway and could reach the US Supreme Court by 2027, and some operators are cautiously exploring options, Bloomberg reported.
DraftKings recently bought Railbird Technologies, a federally licensed exchange, but said its upcoming DraftKings Predictions app will focus on finance and culture, not sports.
Abi Bray brings strong researching skills to the forefront of all of her writing, whether it’s the newest slots, industry trends or the ever changing legislation across the U.S, Asia and Australia, she maintains a keen eye for detail and a passion for reporting.
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The Backstory
What’s driving the chill around prediction markets
Major U.S. sportsbooks are steering clear of federally supervised prediction markets as they weigh whether participation could jeopardize state licenses that underpin their core businesses. Exchanges such as Kalshi and Polymarket argue they fall under federal commodities rules, not state gambling oversight. That distinction has triggered pushback from state regulators and traditional operators who have invested heavily to comply with a patchwork of state-by-state regimes.
The caution reflects a simple calculus: the upside from event-contract trading is unclear, while the downside of provoking state regulators is immediate. Nevada officials have warned that participating in prediction markets, even across state lines, could put a company’s approvals at risk. The American Gaming Association has urged that event wagering remain a matter for state control. The debate has migrated to the courts and could take years to resolve, with industry executives bracing for a potential path to the U.S. Supreme Court. Bloomberg has reported operators are “monitoring” but not rushing in, emphasizing they will not risk licenses that allow them to run casinos and mobile sportsbooks across dozens of jurisdictions. For a snapshot of the licensing-risk argument and operator sentiment, see Bloomberg’s coverage at sports-betting firms see state license risk in prediction market.
The stakes have grown as prediction contracts gain traction with retail traders and social-media users. Public market jitters have added pressure: DraftKings’ shares have stumbled since late summer amid investor questions about how prediction markets might siphon interest or reshape the regulatory perimeter. DraftKings has sought a controlled entry point by buying a federally licensed exchange and planning a predictions app focused on finance and culture rather than sports — a signal it wants exposure to the trend without drawing fire from state gaming watchdogs.
Fault lines between federal and state oversight
The clash lands on familiar U.S. ground: who regulates what. Event contracting platforms say they answer to the Commodity Futures Trading Commission; states say bets on outcomes, from elections to sports, belong under gambling law. That argument mirrors broader fights over mobile wagering’s reach and how to police new forms of risk. New York, one of the country’s most lucrative markets, put those tensions on display during a recent legislative hearing centered on the risks and economics of online betting.
Lawmakers in Albany examined whether to expand gambling while strengthening safeguards, highlighting a surge in mobile engagement and the frictions that come with it. The joint session underscored how easier access via phones and in-game features complicates addiction prevention. The debate also touched on revenue leakage and whether to legalize online casino gaming. Read more about the hearing and the competing pressures in New York lawmakers weigh gambling expansion amid addiction concerns.
Prediction markets sit squarely inside this broader tug-of-war. If federal approval becomes a perceived workaround to state oversight, states could harden against operators that mix models, raising the compliance temperature for any company with multistate exposure. That’s why large casino brands have emphasized deference to state regulators and kept their distance while legal questions percolate.
Rhode Island tests competition — and control
Rhode Island offers a case study in how states recalibrate control. The Senate passed legislation that would end the state’s single-operator structure and open bids to outside sportsbooks as the current contract nears expiration. Supporters argue more competition could improve product quality and tax yields; skeptics warn tax concessions might be needed to attract national brands, eroding revenue. The measure still faces hurdles in the House. The dynamics are laid out in Rhode Island bill could open market to new sportsbooks.
The policy argument is documented in detail through public filings tied to the bill. DraftKings has pressed lawmakers to let residents “play on their favorite apps,” contending the market is underpenetrated. Its position is reflected in a submission posted by the Senate Labor and Gaming panel: DraftKings’ letter on S 748. Incumbent supplier IGT has countered that the current model outperforms many regional peers and warns that opening the market may force Rhode Island to cut its take to remain competitive. Its response is available in IGT’s testimony. The legislative text is posted at S 748A.
For operators weighing prediction markets, Rhode Island’s debate sends a message: statehouses remain assertive in shaping who can offer what. Any perceived attempt to sidestep state authority — whether via federal venues or new product categories — risks complicating participation in markets where legislators are actively renegotiating the balance between competition and control.
Public health concerns shift the risk calculus
The regulatory climate is not just about jurisdiction. Public health arguments are intensifying as academics and state officials track the social costs of ubiquitous online gambling. A recent Harvard T.H. Chan School panel warned that technology, product design and instant payments have made gambling more accessible and potentially more harmful, with risks rising among young adults and higher-income consumers. The discussion, covered in Harvard panel addresses public health risks associated with proliferation of gambling in the U.S., called for stronger safeguards and even a federal role akin to tobacco or alcohol oversight.
These warnings reverberate in legislative rooms like Albany’s and inform why operators tread carefully around products that blur the line between trading and wagering. As regulators and health officials refine tools to track behavior and intervene, firms must anticipate that new offerings will face sharper scrutiny, particularly if they expand betting into politics or real-world events outside traditional sports.
A global lens on enforcement and reputational risk
International developments add another layer. India’s Parliament recently spotlighted online gambling risks and the constitutional limits on national intervention, stressing that states control gambling rules and enforcement. The exchange, detailed in Indian lawmakers hold heated debate on risks of online gambling, underscores how federal systems worldwide are grappling with jurisdiction and accountability as digital wagering jumps borders.
In the Philippines, authorities are tightening anti-money-laundering scrutiny of online gambling even after the country exited the Financial Action Task Force’s grey list. The central bank governor and the Anti-Money Laundering Council have warned that digital platforms pose fresh risks and are conducting a risk assessment across gambling formats. Rapid growth in online gaming revenue has fueled calls for vigilance and legal reviews. See Philippines scrutinizes online gambling amid money laundering risks.
For U.S. operators considering prediction markets, these global currents point to reputational and compliance risks beyond domestic licensing. Links between online betting, financial crime prevention and cross-border enforcement mean that even federally sanctioned products can attract multilayered oversight and public scrutiny.
The bottom line: prediction markets may offer growth, but the pathway runs through state regulators, public health concerns and evolving global enforcement norms. Until there is clearer legal consensus and political cover, the industry’s biggest players appear content to watch, lobby and test ideas at the edges rather than gamble with the licenses that drive their largest profits.
