Sports contracts or economic forecasts — the legal status depends on what you're trading. Here's what federal law, the states, and the IRS actually say.
States Contesting
13+
Contract Types
4
Tax Rate
Ordinary
Read Time
10 min
The key takeaway from this page
The honest answer — from a site with no platform to sell.
It depends on the contract type.
Federal, state, and IRS treatment
“Event contracts” are legal under the Commodity Exchange Act. CFTC licenses prediction market exchanges as Designated Contract Markets. Not gambling by federal definition. Chair Michael S. Selig (Mike Selig) announced formal rulemaking March 2026.
14 states (NV, NJ, MD, MA, MI, OH, CT, TN, NY, UT, AZ, IA, IL, WA) plus tribal groups have active enforcement actions claiming sports event contracts violate state gambling laws. Courts are divided on whether federal preemption applies; 9th Circuit (NV) and 3rd Circuit (NJ) are expected to set precedent in 2026.
State-by-state statusPrediction market winnings are taxed as ordinary income, not capital gains. No preferential rate. Losses may be deductible as gambling losses (consult a tax professional).
Full tax guideArguments for investing vs. gambling
Platforms say: “Investing.”
Critics say: “Gambling.” Courts are deciding now.
Our take:
It depends on the contract. Both sides have valid arguments — and the distinction that matters is what you're trading, not which platform you're on. The legal system is actively sorting this out across 14 states simultaneously.
Where each exchange falls on the spectrum
Where each platform falls on the gambling–investing spectrum depends on its regulatory structure, product framing, and target audience. How prediction markets work →
ForecastEx (Interactive Brokers)
CFTC DCM + DCO, accessed through an institutional brokerage account. ForecastEx offers economics, politics, and finance contracts — no sports. Integrated into the same IBKR interface used for stocks, options, and futures. The strongest “this is finance” framing of any prediction market platform.
Kalshi
CFTC-regulated DCM + DCO (Designated Contract Market and Derivatives Clearing Organization) — the first federally regulated prediction market exchange. Frames contracts as “event contracts,” not bets. Broadest category coverage (politics, economics, weather, sports, entertainment, science). The CFTC's primary example of regulated prediction markets. Read the Kalshi guide →
Robinhood
A brokerage app offering Kalshi-powered event contracts alongside stocks and crypto. Event contracts sit in the same portfolio as your index funds — which normalizes them as financial products. Available in most states; all event contracts blocked in MD, and sports contracts restricted in AZ, IL, MA, MI, MT, NJ, and OH.
Polymarket
Polymarket now has a U.S. regulated path via QCX LLC d/b/a Polymarket US, while its international product remains separate and more crypto-native. That split leaves it sitting between traditional finance framing and speculative trading for many users.
FanDuel Predicts & DraftKings Predictions
FanDuel Predicts launched December 22, 2025 via FanDuel and CME Group. These are event contracts rather than standard sportsbook wagers, but the sportsbook branding is exactly why critics argue the category still looks like gambling to ordinary users. FanDuel Predicts guide →
Contract types and their legal status
Not all prediction market contracts are treated the same.
| Contract Type | Example | Legal Status |
|---|---|---|
| Sports event outcomes | NBA Champion, Super Bowl winner | Legally contested in 14 states |
| Political outcomes | Election results, legislation passage | CFTC-approved, courts lean clear |
| Economic/financial | Fed rate, CPI, GDP | Clear — commodity market precedent |
| Regulated entertainment | Oscar winners, reality TV | Generally clear |
Source: CFTC rulemaking framework + state case analysis. Status as of March 2026.
Key actors across the political spectrum
“These aren't investments — they're bets. Congress should regulate them as gambling.”
“Calling sports wagers 'event contracts' lets exchanges bypass state gambling licenses and consumer protections.”
“Sports contracts are gambling under Michigan law. We are enforcing state gaming statutes.”
“We are the appropriate federal regulator. Formal rulemaking is the path to clarity.”
Key insight
This is bipartisan. Warren (left), Mulvaney (right), Nessel (state AG). The consensus that sports contracts need clarification crosses party lines. There is no consensus on outcome — only that the status quo is untenable.
Political or economic markets
Courts and the CFTC lean toward “legal investing.” These contracts have the strongest regulatory foundation.
Sports outcome markets
14 states and growing — treat as legally contested. Know your state before trading sports contracts.
6 common questions answered
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