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Online sports betting is not legal in Minnesota, but that hasn’t stopped Ian White from trading money on the outcomes of NFL games. White, a special education paraprofessional, said he downloaded Kalshi, a “prediction market” app, after seeing an ad on TikTok. He buys contracts worth $10 a game and has made about $130.

“I do consider Kalshi betting,” he said, “but I love how they get around it by selling futures.”

Kalshi can “get around” state gambling laws because on paper it is not a sports gambling app, like FanDuel or DraftKings. Those kinds of online sportsbooks are banned in 20 states, including Minnesota, California and Texas. Instead, Kalshi is an exchange selling financial products tied to the outcome of sporting events — and, with the tacit approval of the Trump administration, is currently available everywhere in the country.

Prediction markets are smaller than online sportsbooks, but they are growing fast. In September, with the NFL season underway, more than $2.5 billion of sports contracts were traded on Kalshi, the largest such market. The American Gaming Association estimated that online sportsbooks accepted a combined $14 billion in bets in September 2024.

Kalshi’s entry into sports coincides with rising skepticism of legal gambling, with 43% of American adults in a recent Pew Research poll saying legal sports betting is “a bad thing” for society (7% said it was a good thing). Pushback on Kalshi and other prediction markets has come not just from politicians in states where sports gambling is illegal, but also from states where it is legal, licensed and taxed — and where prediction markets are avoiding those regulations and taxes.

“What they’re doing is essentially calling sports betting by another name, and that’s just wrong,” said Sen. Catherine Cortez Masto, D-Nev.

Kalshi says prediction markets are fundamentally different from sportsbooks. Gamblers place bets against the sportsbook itself, and the sportsbook keeps their losses; prediction markets facilitate trading of contracts between users, taking a cut as a service fee. Tarek Mansour, Kalshi’s chief executive, said in an email: “Kalshi doesn’t win when our customers lose, which creates a fair, transparent environment for people to trade.”

Sports gambling was illegal in most states until 2018, when the Supreme Court struck down a federal ban and allowed states to make their own rules. The 30 states that now permit online sportsbooks collectively pull in billions of dollars in tax revenue.

But the prediction markets, unlike the sportsbooks, have been operating outside the reach of state regulators. That’s because the sites are considered financial markets and regulated by the Commodity Futures Trading Commission, a federal financial regulator, which under the Trump administration has pivoted toward a hands-off approach.

In the past, prediction markets were best known among forecasting nerds, with the largest run in part by academics from Victoria University of Wellington in New Zealand. Their exchange, PredictIt, focused almost entirely on political predictions like “Who will win the 2016 U.S. presidential election?”

But this year Kalshi started to emphasize sports in its product design and advertising. So far this year, sports-related contracts have accounted for 77% of the money wagered on Kalshi.

Under the Biden administration, the CFTC was controlled by a majority of Democratic commissioners and tried to stop prediction markets from accepting wagers on elections, let alone sports. In 2023, the agency issued an order barring Kalshi from offering election contracts, but it was later overturned by a federal court. In 2024, it proposed a rule that would have disallowed sports contracts.

Things changed in January. One week before President Donald Trump took office, Kalshi named his son Donald Trump Jr. as a strategic adviser. Three days after Donald Trump started his term, Kalshi listed its first sports contracts on two NFL playoff games.

Caroline Pham, whom Trump named as the CFTC’s acting chair, said in a statement in February that the agency “must break with its past hostility to innovation and take a forward-looking approach to the possibilities of the future.” In May, the agency dropped its election market litigation against Kalshi.

Pham and the CFTC did not respond to requests for interviews. A spokesperson for Donald Trump Jr. declined to comment.

Cortez Masto, together with Sen. John Curtis, R-Utah, and five other Democratic senators, sent a letter to the agency last week asserting it was overriding state law by “implicitly permitting sports gaming products.”

“We have laws on the books right now that the CFTC needs to enforce,” Cortez Masto said in an interview. “Using event contracts that facilitate sports betting illegally circumvents the authority of state and local governments like Nevada.”

Nevada, Arizona, Illinois, Maryland, New Jersey, Montana and Ohio have all sent cease-and-desist letters to Kalshi, yet the company continues to offer sports prediction markets in all 50 states. “The CFTC’s continued inaction is disappointing, to say the least,” said Marcus Fruchter, the Illinois Gaming Board administrator, who asked the agency for help in shutting down the markets.

States with legalized online sports gambling often cite tax revenue as a benefit. New York, for instance, collected $1 billion in tax revenue in the last 12 months from its 51% tax of “gross sports wagering revenue.” Prediction markets operating in New York, or any other state, owe no such local tax.

The Massachusetts attorney general sued Kalshi last month, saying the company “disguises” sports wagering as event contracts. A sportsbook must pay Massachusetts $1 million a year for a license, and must follow guidelines like restricting access to those younger than 21; prediction markets can offer services to anyone 18 and older without a state license.

The National Council on Problem Gambling, in a letter to the CFTC, said prediction markets should be required to add age restrictions, optional betting limits and other safeguards if they offer sports contracts. “From a problem gambling standpoint, betting on futures is functionally gambling,” it wrote.

Just last year, when Kalshi was trying to defend its election contracts as distinct from “gaming,” it pointed to Super Bowl predictions as an example of an unlawful gaming market. This year, it marketed its sports contracts with ads that said users could “bet on football legally.”

Football season has accelerated Kalshi’s sports trading growth, with more money traded on its sports markets last week than was traded the entire week of the 2024 election.

Last week, Kalshi introduced more complex contracts known as parlays (“Will the Bears, Bills and Browns all win?”). These long-shot bets are considered the most profitable for major sportsbooks. Shares of FanDuel and DraftKings dropped more than 10% after the announcement.

Kalshi has benefited from a partnership with the popular brokerage app Robinhood, which allows its users to trade Kalshi contracts with the same account they use to trade stocks.

It has also probably benefited from the state bans on online sportsbooks. “If Minnesota had legal sportsbooks, I wouldn’t have used Kalshi,” White said.

Other companies are testing other legal gray areas. This year, The New York Times reported on online sweepstakes casinos, which offer payouts on blackjack and roulette by framing them as legal “sweepstakes.” Last month, the company Betr, cofounded by social media star Jake Paul, started a “social sportsbook” that uses the same sweepstakes loophole to essentially offer sports gambling in its app, including in many states where sports gambling is illegal.

Another prediction market, Polymarket, has had more run-ins with the CFTC. The agency fined Polymarket $1.4 million in 2022, and later investigated it for continuing to offer trading services to Americans. That investigation, and another by federal prosecutors, ended in July. Polymarket is set to resume offering sports and elections contracts to U.S. users this week.

In August, Donald Trump Jr.’s venture capital firm invested in Polymarket, despite his position with its rival Kalshi.

If state regulators can’t stop prediction markets from becoming sportsbooks, another potential issue is around the corner: Sportsbooks could become prediction markets. In August, FanDuel announced it would create a prediction market of its own.

This article originally appeared in .

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