A New Way to Bet on Sports
If you live in California, Texas, or one of the other states where sports betting remains illegal, you can now wager on NFL games through a loophole that has state regulators scrambling. Prediction markets like Kalshi and new offerings from DraftKings and FanDuel are accepting sports wagers in 38 states, regulated not by state gaming commissions but by a federal agency typically focused on commodities trading.
For bettors in states with legal sportsbooks, prediction markets represent something else: potential competition that could offer better odds. The structure is fundamentally different, and understanding that difference matters if you’re looking for value in the betting market.
How Prediction Markets Differ from Sportsbooks
Traditional sportsbooks operate on a simple model. You bet against the house. The house sets the odds, collects losing bets, pays out winners, and keeps the difference (the “vig” or “juice”). That margin typically runs 4-5% on standard bets, which is why you see -110 on both sides of a spread.
Prediction markets work differently. Users trade “event contracts” with each other, not against a house. Want to bet the Eagles win? You buy a contract. Someone who thinks they’ll lose sells it to you. Prices fluctuate based on supply and demand, similar to a stock exchange. The platform takes a transaction fee on each trade rather than building margin into the odds.
This peer-to-peer model can produce different prices than traditional sportsbooks. When Kalshi offered the Packers-Bears Wild Card game, the Packers traded at 53 cents (roughly -113 odds) while sportsbooks had them around -120. Small edges, but edges nonetheless.
The Regulatory Battle
Prediction markets argue they’re not gambling. They claim their contracts are financial derivatives regulated by the Commodity Futures Trading Commission (CFTC), not state gaming authorities. This distinction lets them operate in states that haven’t legalized sports betting.
State regulators disagree. More than 20 lawsuits and cease-and-desist orders have been filed against Kalshi alone. Massachusetts Attorney General Andrea Campbell sued the company in September 2025, noting that more than 75% of Kalshi’s trading volume comes from sports. Nevada’s Gaming Control Board issued warnings that prediction markets constitute wagering under state law.
The legal fight appears headed to the Supreme Court, with rulings not expected until 2027 at the earliest. In the meantime, prediction markets continue operating and growing rapidly.
The Numbers Behind the Growth
Kalshi’s trading volume has exploded. The platform now sees over $1 billion traded weekly, a 1,000% increase from 2024. Its valuation jumped from $5 billion in August 2025 to $11 billion by December. Sports accounts for roughly 87% of all trading activity.
The major sportsbook operators have noticed. DraftKings launched DraftKings Predictions on December 19, 2025, available in 38 states. FanDuel followed with FanDuel Predicts, live in five states. Fanatics launched Fanatics Markets in 24 states. All three companies are targeting states where their traditional sportsbooks can’t operate.
Investment bank Citizens estimates that approximately 5% of legal sports betting handle is now flowing to prediction markets, roughly $8 billion on an annualized basis. New York, New Jersey, California, Washington, and Ohio lead in trading volume.
What This Means for Bettors
Contrarian bettors should pay attention to prediction markets for two reasons. First, they offer another data point. When sportsbook lines and prediction market prices diverge significantly, it suggests disagreement about true probabilities. That disagreement can signal value opportunities.
Second, the peer-to-peer model eliminates the structural disadvantage of betting against a house. Traditional sportsbooks profit when you lose. Prediction markets profit on transaction volume regardless of outcome. This alignment difference could matter over thousands of bets.
There are caveats. Prediction markets are new and less liquid than established sportsbooks. Prices can be more volatile. Regulatory uncertainty means the platforms could face restrictions. And the absence of traditional sportsbook features like parlays (though Kalshi recently introduced “combos”) limits flexibility.
The Political Dimension
The Trump administration has taken a more permissive stance toward prediction markets than its predecessor. President Trump’s son, Donald Trump Jr., serves on advisory boards for both Kalshi and Polymarket. Truth Social, Trump’s social media company, has partnered with Crypto.com to offer prediction markets. This political alignment may influence how aggressively federal regulators pursue the industry.
Major media organizations are integrating prediction market data. CNN and MSNBC have announced partnerships with Kalshi, potentially bringing betting odds into news broadcasts similar to how traditional sportsbook data already appears.
Looking Ahead
The prediction market disruption creates uncertainty for the state-regulated sports betting framework built since 2018. States that haven’t legalized betting face a difficult choice: watch residents wager through federally-regulated prediction markets and collect no tax revenue, or accelerate legalization to capture that activity.
For bettors, competition is generally good. More options mean more opportunities to find the best price. Whether prediction markets survive their legal challenges or force traditional sportsbooks to compete more aggressively, the contrarian approach of seeking value where others aren’t looking remains the foundation of long-term success.
The dust won’t settle for years. In the meantime, understanding both models gives you more tools for finding edges the public misses.