Source: Fortune
Summary
In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act, which banned banks from processing payments for online betting but allowed fantasy sports as a game of skill. DraftKings and FanDuel expanded fantasy sports into daily contests, leading to regulatory pushback. Now, prediction markets like Kalshi and Polymarket are using a similar loophole, claiming their contracts are commodity futures, not gambling. A Fullstory survey found that 60% of bettors say prediction markets have changed how often they use traditional sportsbooks. Prediction markets are estimated to be a $50 billion to $100 billion market, with states losing tax revenue. Illinois and other states are trying to tax prediction markets, but companies are fighting back in court.
Our Reading
The numbers tell one story.
Prediction markets are using a loophole.
They claim to be commodity futures, not gambling.
Sportsbooks are losing users and revenue.
The shift is partial, not total.
Prediction markets are reshaping expectations.
Bettors prefer transparency and ease of use.
Traditional sportsbooks are under pressure.
Regulators are scrambling to catch up.
The battle between old and new is heating up.
Author: Evan Null
Using the same playbook
Instead of “skill, not chance,” Kalshi and Polymarket’s version is “commodity futures, not gambling,” or contracts on sports outcomes regulated by the CFTC. That’s the same federal agency that oversees things like oil and wheat futures, not individual state gaming boards. As a result, prediction markets don’t have to acquire a state sportsbook license, nor do they have to pay a state betting tax.
Polling more than 1,000 U.S. consumers in September, Fullstory’s survey says bettors are pulled toward prediction markets because of a better experience. Trust and reputation (60%) and ease of use (59%) beat out potential payouts or odds (51%) as the top reasons people pick a platform, and 77% said they’ve switched gaming platforms entirely over the user experience alone.
“Our research suggests that prediction markets are changing betting behavior, with more types of events to predict, greater transparency around outcomes and pricing, and an easier or more intuitive experience as top reasons why consumers would consider a prediction market over a sportsbook,” Jason Wolf, president of Fullstory, told Fortune. “That should be a wake-up call for traditional sportsbooks.”
Regulatory battles
Americans legally wagered $166.94 billion on sports in 2025, generating $3.71 billion in state tax revenue. The American Gaming Association estimates prediction markets have diverted more than $500 million in potential sports-betting tax revenue away from states. Illinois tried to stop that with a 15% tax on prediction-market sports contracts, but Kalshi sued, arguing the state has no authority over a federally regulated product. Similar fights are underway in Nevada, New Jersey, and Maryland.
Sports remain the most popular betting category even among prediction-market users, and a quarter of survey respondents said they use both kinds of platforms, just for different events—a sign the shift, for now, is partial rather than total.
Changing expectations
“The biggest threat prediction markets pose to sportsbooks may not be that consumers stop betting on sports,” Wolf said. “It’s that they reset consumers’ expectations for what a betting experience should look like. Once consumers become accustomed to more choice, greater transparency, and intuitive digital experiences elsewhere, they’ll bring those expectations to every platform they use.”
Traditional sportsbooks are now facing a new challenge: not just competition, but a shift in consumer behavior. Prediction markets are not just taking money—they’re changing how people think about betting. And that’s a bigger threat than the numbers alone suggest.
Industry reaction
DraftKings and FanDuel, once the kings of daily fantasy sports, are now watching as a new wave of platforms takes their place. The same playbook that worked for them—exploiting a legal loophole and building a better user experience—is now being used against them. The regulatory environment is shifting, and the lines between gambling, finance, and technology are blurring.
As prediction markets grow, the pressure on traditional sportsbooks is mounting. They’re not just losing users—they’re losing influence. And with that comes a new set of challenges, as regulators, investors, and consumers all try to figure out where the line between gambling and finance really lies.
