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Prediction Markets and Sweepstakes Casinos Clash with States
02 October 2026
Online gambling platforms like prediction markets and sweepstakes casinos are booming with younger audiences, but a wave of state regulatory backlash threatens to rein in their growth. Competing federal oversight leaves the battle murky.
In a sign of how aggressively states are pursuing prediction markets, New York filed two high-profile lawsuits this year against Polymarket U.S. and Kalshi. New York Attorney General Letitia James alleges the startups operate illegal gambling platforms without proper licenses. She shared a titanic rebuke in August - a 44-attorney general letter comparing prediction markets to "a new form of casino preying on young people."
Kalshi declared victory as a New York court declined to halt its operations but the federal Commodity Futures Trading Commission (CFTC) quickly intervened, exercising emergency authority to let Kalshi continue predicting and cashing in as it already is. The cornerstone of the regulator's argument is that predictions count as financial derivatives, not traditional gambling, and fall under federal oversight, not state. Spaces of regulatory authority are up for grabs.
The federal agency has sued at least nine states, including Texas and Florida, to stop them blocking or regulating prediction markets. In typical fashion, the Nevada Gaming Control Board said sports predictions are "gambling under any definition."
This legal limbo could force the platforms to limit or pause their products in some states. Washington state already issued an order barring Kalshi contracts tied to sports, culture, tech and politics by Aug. 19, along with IP-address geofencing requirements for August. Kalshi did not respond to requests for comment.
Scaling and Customer Acquisition Costs
Judging by the traffic numbers, it’s clear why these platforms have attracted the younger, online-first audience they seek. Stake.com topped the list of most-visited gambling sites with 147.8 million monthly visits, followed by Sportybet.com at 78.6 million and Hollywoodbets.net at 58.7 million.
Based in Malta, England and Canada, the platforms keep a low-profile in mainstream media. The prediction market industry raised at least $200 million from venture investors, including the parent of the New York Times, between 2013 and 2021, according to an SEC filing. In February, VGW LuckyLand said it raised $200 million in a Series C funding round, from unnamed investors.
Transactions are facilitated digitally, with users punting virtual coins and tokens, rather than cash - a setup that is seen by some as outside the traditional gambling definition. FanCash, the rewards system for Fanatics Casino, gained another $50 million raise in March. App-based bettors underestimate transactions as free credits, according to the CEO. Fanatics CEO Eric Wasserstrom said he aims to raise cash to grow Fanatics Casino "globally."
More on this is available via what to look for in a South African online casino.
Regulation and Politics
Regulatory threats led the market-hotamise founders to interpret their platform as prediction markets, not for-ready gambling. The difference matters as sports betting is legal in 36 states, while few regulate predictions, which for now fall into a vacuum of federal oversight.
When asked if the online gambling audience leaned younger, TSXBD Marketing Agency head Francesco Galati, said "yes" and speculated this was because the younger demographic is "digital native, more tech-savvy."
Such profiles exemplify why platforms could be vulnerable to a regulatory crackdown on their growth. Other products may not be as easily codified nor pitched to the court - Sweepstakes sites notably have restructured their marketing and product on the fly, defying clarity.
Some potentially problematic moments underscore the political maneuvering. Chinese gambling giant Suncity, which is tied to international mobs, is an early backer of the prediction market. Kalshi raised a $50 million round backed by Baidu, one of China’s big tech firms. Kalshi received a controversial "no-action letter" from the Commodity Futures Trading Commission, allowing it to operate because predictions aren’t gambling - though correction at the state level remains, generally.
A 2018 report by the Journal of Gambling Studies described how for-centry online gambling is both "attractive and financially rewarding, while being legal." From 2000 to 2017, its authors estimated 3.3 million US residents developed gambling problems.
It is unclear if prediction market and social casino growth will pause growth in some states - or if or how the CFTC will intervene more. Future battles have yet to crystallize. Still, the battle lines drawn in 2026 highlight a combustible moment for online gambling growth that could prove pivotal for the industry.