Prediction Markets Hit $24B/Month as States Fight Back

⏱ 3 min read

Prediction markets are now the fastest-growing segment in US gambling, with Kalshi and Polymarket recording combined monthly trading volume of $24 billion as of April 2026 — a figure that eclipses the roughly $14 billion that licensed US sportsbooks process in an average month. That growth, fuelled by sports event contracts and a regulatory structure that keeps platforms under the Commodity Futures Trading Commission (CFTC) rather than state gaming boards, has set off a legal war that this week produced a new injunction, the first state felony ban, and a push toward the US Supreme Court.

On June 30, 2026, a Michigan judge approved a temporary restraining order blocking Kalshi from offering sports contracts in the state — making Michigan the third jurisdiction to secure an injunction against the platform after Nevada and Massachusetts. Simultaneously, Minnesota's outright ban on prediction markets, enacted earlier this year, is set to take effect on August 1, 2026 and carries criminal penalties including state felony charges for operators. Justice Samuel Alito has given New Jersey until August 4 to file a certiorari petition with the Supreme Court — a move that could finally force a definitive federal ruling on whether the Commodity Exchange Act pre-empts all state gambling authority over sports event contracts.

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How big prediction markets have become

Monthly global trading volume on prediction markets grew from below $5 billion in September 2025 to $24 billion in April 2026, according to Pew Research Center data — a nearly fivefold increase in eight months. Sports-related contracts now account for 80% of Kalshi's total volume since mid-2024. Analysts at Bernstein project full-year 2026 volume of $240 billion, a rise of roughly 370% year-over-year, and forecast that the market could reach $1 trillion annually within four years.

The structural advantage is clear: unlike sportsbooks, which manage outcome risk, prediction markets earn a transaction fee on every trade, so profitability scales with volume regardless of results. That fee model has let platforms grow quickly across all 50 states, since the CFTC's designation as a Designated Contract Market (DCM) has, so far, kept them beyond the reach of state gaming commissions.

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The state-by-state legal war

The legal conflict is now active in more than a dozen states. The current split between appellate courts is the critical issue:

• Third Circuit (April 2026): Ruled 2-1 in Kalshi's favour against New Jersey, finding sports event contracts are CFTC-regulated swaps and the Commodity Exchange Act pre-empts state gambling law.
• Michigan (June 30, 2026): Judge Rosemarie Aquilina issued a temporary restraining order against Kalshi; daily fines threatened for non-compliance with geolocation requirements.
• Minnesota (effective August 1, 2026): First state to make operating a prediction market a state felony. A federal challenge is pending before US District Judge Katherine Menendez, who called the platforms' pre-emption argument "an uphill battle."
• Nevada and Massachusetts: Both have court injunctions against Kalshi in force; enforcement against actual user access has been described by Nevada investigators as difficult to implement.
• Arizona: Filed criminal charges against Kalshi — the only state to pursue that route.

The American Gaming Association has called this "a defining fight," claiming prediction markets are costing governments more than $1 billion in lost tax revenue annually. The Coalition for Prediction Markets — which includes Kalshi and Polymarket — fired back this week, alleging the AGA drafted lobbying language that appeared word-for-word in an official Maryland Lottery and Gaming Control Agency letter submitted to the CFTC.

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States pivot to taxation as a fallback

With direct bans proving legally fragile, several states are pursuing taxation as a secondary strategy. The most significant developments this week:

State	Approach	Rate / Status
New Jersey	9% surtax on prediction market gross income (SB 4447 / AB 5336)	Advanced by Senate Budget Committee 9-4 on June 28; not yet law
North Carolina	6% tax on net trading fee revenue	Included in state budget advancing through legislature
Kentucky	14.25% excise tax on transaction fees	Enacted April 2026; Kalshi and coalition filed lawsuit
Illinois	Prediction market tax signed into law	Kalshi already filed federal challenge

New Jersey's Office of Legislative Services estimates the state's proposed 9% surtax could generate up to $15.3 million by 2027. For context, New Jersey's licensed iGaming market produced $293.7 million in state taxes year-to-date through May 2026 — more than 19 times that figure — underscoring how much revenue the regulated market still generates relative to what prediction markets might contribute.

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The SCOTUS path and what it means

New Jersey's Solicitor General Jeremy Feigenbaum described the stakes in the Supreme Court extension application: a ruling favouring CFTC exclusive jurisdiction "would federalize a multibillion-dollar-a-year sports-wagering industry at the expense of every state law in the country." If the court grants cert and sides with the CFTC, the regulatory frameworks built by 39 states for licensed sports betting could be circumventable by any operator willing to structure payouts as event contracts and obtain a CFTC designation. New Jersey has until August 4 to file; the CFTC's own proposed rulemaking — a 267-page framework released in June — has a comment deadline of July 27, 2026.

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What this means for licensed operators and bettors

For sportsbook operators, the risk is structural, not just competitive. A Supreme Court ruling favouring CFTC pre-emption would not only validate prediction markets but potentially invite new entrants to bypass state licensing, responsible gambling mandates, and age-verification requirements that licensed books must meet. FanDuel, DraftKings, and BetMGM operate under frameworks that impose significant compliance costs; unregulated competitors would face none of them.

For bettors, the immediate picture is fragmented. If you are in Minnesota, access to sports event contracts on Kalshi or Polymarket becomes a criminal matter from August 1. In Michigan, the restraining order is in effect. In New Jersey, Kalshi currently operates under the Third Circuit's injunction. In most other states, status is governed by active litigation that can change within weeks.

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Sources

Primary and specialist sources used in this report, listed in order of citation weight.

This issue is tremendously important: the Third Circuit's conclusion would federalize a multibillion-dollar-a-year sports-wagering industry at the expense of every state law in the country.

— Jeremy Feigenbaum, Solicitor General, State of New Jersey · SCOTUS extension filing, June 2026