Prediction markets, which enable individuals to trade on the outcomes of future events, are prompting legal and regulatory challenges across the nation, with Indiana potentially taking up the issue in its 2027 legislative session. These markets are bending traditional definitions of gambling and have led to federal-state conflicts over oversight and consumer protection. Kalshi, the first federally regulated financial exchange in the United States dedicated to trading on future outcomes, is currently battling 21 states in court over its operations.
These markets allow users to buy "yes" or "no" contract shares on whether an event will occur. Each event includes a clearly stated source for determining the outcome, such as the National Weather Service's airport sensor for weather predictions or a state election division site for political races. Users can also sell their shares before an event is officially decided, a feature distinguishing them from traditional gambling. For example, Kalshi currently lists an Indiana Secretary of State race, showing Democrat Beau Bayh at 60% and Republican Max Engling at 44% on Thursday. The trading volume for this race reached $28,267. Another Indiana-related event on Kalshi tracks the potential relocation of the Chicago Bears, with current odds on Thursday favoring a new location in Illinois at 57% and Indiana at 42%. The volume for this market has exceeded $950,000. Other prediction markets, like Polymarket, also allow trading on a range of events including election results, sports, and entertainment outcomes, such as the winner of “Dancing with the Stars.”
The federal government contends it holds sole authority to regulate these markets through the Commodities Futures Trading Commission. However, many states are seeking their own regulatory say, citing concerns over consumer protections and potential impacts. Last week, 40 state attorneys general collaborated to file an amicus brief, urging the U.S. Supreme Court to review a New Jersey petition regarding whether federal law for commodity trading supersedes state gambling laws. The Trump administration has sided with the prediction markets on this issue.
Indiana Attorney General Todd Rokita did not join the amicus brief filed by the 40 state attorneys general. His office stated that some people are now using these markets as an alternative to polling for gauging public sentiment. Rokita expressed hope that the Supreme Court would eventually take up the case to grant states some basic authority, which would then allow state lawmakers to establish reasonable guardrails and a taxing structure. Arizona, for instance, has filed criminal charges against Kalshi, and some states have specifically banned sports trades on these platforms. According to data from the National Conference of State Legislatures analyzed by the Pew Research Center, 23 states completely ban election betting.
A significant concern for states involves the sports market, where prediction markets do not pay state gaming taxes, unlike regulated sports gambling sites such as DraftKings. Beyond taxation, civic organizations and some public officials have raised alarms, stating that money changing hands over the outcome of elections is "corrosive to democracy" and represents an attempt to bypass existing bans on election betting. Warnings against insider trading are prominently displayed on these trading sites, which treat trades similar to commodities on the stock market.