The online version of betting known as prediction markets has come seemingly out of nowhere to become a multibillion-dollar industry, one that has set off a struggle pitting states’ rights to regulate them against federal power.
Betting on wins or losses is passe. Betting on whether an NCAA player will make the next free throw is more like it. And sports are just the start. The outcome of elections, the prospect of assassination or regime change, the likely death toll from a hurricane: All are fair game in this world, which uses blockchain technology and crypto payments to facilitate wagers between players.
Concerns about insider trading are growing as betting on prediction markets expands to cover events such as regulatory decisions. And the risks became evident early this year after a single prediction markets bettor reportedly pocketed $400,000 on a bet that Venezuela’s then-president, Nicolás Maduro, would soon be out of office — not long before the U.S. military captured Maduro and ended his tenure.
The Commodity Futures Trading Commission has made a play to regulate these markets — with a clear intent to offer a laissez faire regimen that could put participants at risk and cost states billions in lost tax revenue. Not so fast, the states say; at least 11 states have initiated regulatory efforts, issued cease-and-desist letters or sued, with more litigation and legislation likely to come.
At least six bills in Congress are aimed at everything from forbidding lawmakers from betting based on nonpublic information to one by Sen. Richard Blumenthal, D-Conn., that would give Congress the lead in comprehensive federal regulation.
Illinois is one of the states raising alarms, as my colleagues at the Better Government Association’s Illinois Answers Project and Capitol News Illinois explained in a recent examination of challenges Illinois faces from these fast-growing markets that operate outside the state’s control.
State Sen. Michael Hastings, D-Frankfort, recently proposed a $1 million licensing fee and hefty taxes on prediction markets operating in Illinois. And Attorney General Kwame Raoul has acted to shut down prediction markets operating here.
Raoul is moving to enforce cease-and-desist orders issued last year by the Illinois Gaming Board, which declared that prediction markets such as Kalshi, Robinhood and Crypto.com are illegal, unlicensed gambling. The Gaming Board early this year also ordered Polymarket — an offshore operator that does not have a license to operate in the U.S. — to stop doing business here.
There are private legal challenges, too. An Illinois lawsuit seeking class-action status claims the markets are illegal, based on an 1819 state law that’s still in effect.
While the concerns are understandable, there could be a downside to a sudden surge of regulation as well. Furor can give rise to ill-considered regulation with unintended negative consequences, as a recent Tribune editorial made clear.
The stakes are high for the states as the conflicts and uncertainty play out.
For starters, the numbers have gotten huge: An estimated $44 billion bet on prediction platforms last year, on virtually every imaginable aspect of sporting events, as well as the aforementioned assassinations, regime changes, flooding, the Los Angeles wildfires and so forth.
The industry’s biggest player, Polymarket, handled an estimated $21.5 billion in bets last year, and Kalshi handled an estimated $17.1 billion, according to estimates from industry research firm Dune Analytics.
There could be ample tax revenue to gain if states do find ways to regulate and tax this betting. The American Gaming Association, the gambling industry’s lobbying arm, this month estimated that states have lost $620 million in tax revenue to prediction markets since the beginning of 2025 on sports betting alone.
In other words, Illinois and other states are not benefiting from the growth of this betting as the states have from state-regulated betting on platforms such as DraftKings and FanDuel.
There is a sense of frustration, perhaps even despair in Springfield and other state capitals because the CFTC so far has shown no sign of a willingness to share regulatory authority, or even exercise its own power in meaningful ways.
Michael Selig, chair of the federal agency, has set a bright red line. “To those who seek to challenge our authority in this space, let me be clear: We will see you in court,” Selig said in a recent recorded message.
This is bold talk. The CFTC, historically understaffed, outmaneuvered by bureaucratic rivals such as the Securities and Exchange Commission, and heavily influenced by the markets it regulates, is even weaker than usual these days.
For example, Selig right now is the sole CFTC commissioner: The four other legally mandated seats on the agency remain vacant. In Selig’s first major act as CFTC chair, he backed the agency away from considering a ban on political and sports-related betting on prediction markets. And his decision to name Polymarket founder Shayne Coplan to the CFTC’s Innovation Advisory Committee has raised eyebrows — but hardly comes as a surprise. Donald Trump Jr. is an investor in Polymarket and a strategic adviser to Kalshi, and the Trump family’s Trump Media and Technology Group, publisher of the Truth Social social media platform, last fall said the Trump-controlled company plans to launch its own prediction markets platform, in partnership with industry player Crypto.com.
Selig, a Trump appointee, can hardly be expected to aggressively step into the breach of regulatory uncertainty.
In short, the public’s stake in this power struggle is substantial. The potential loss of billions in potential tax revenue for states is a major concern. And if states are able to step up where the CFTC refuses to act, they might prohibit betting on wars and hurricanes, for example, or ban flagrant conflicts of interest that seem inevitably headed toward fraud and scandal.
Federal judges have issued contradictory rulings on cases raising questions about state regulatory authority. And the legal uncertainty means the issue of regulatory control likely will wind up before the U.S. Supreme Court.
For now, the best bet for Illinois and other states is to protect their ability to regulate these new markets and control their growth — and build a state-by-state regulatory regime, even if it’s one that the Supreme Court may ultimately undo.
David Greising is president of the Better Government Association.
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