As prediction markets explode in popularity, states are lobbying to get control of the unregulated activity and capture a piece of the new revenue stream.
The surge in online trading also raises questions of whether it will eventually eat into state-sanctioned gambling activities, including lottery proceeds and the revenue that backs some municipal bonds.
With dozens of lawsuits pending from states that argue the betting markets constitute gambling under state and tribal law, the Trump administration has recently sided with the platforms. "The [Commodity Futures Trading Commission] will no longer sit idly by while overzealous state governments undermine the agency's exclusive jurisdiction over these markets by seeking to establish statewide prohibitions on these exciting products," newly confirmed CFTC chief Michael Selig wrote in a Feb. 17 Wall Street Journal opinion piece.
"This was just a little small issue last year," said Chris Cylke, senior vice president of government relations for the American Gaming Association. Cylke made the comments during a Feb. 20 webinar hosted by the National Council of State Legislatures outlining the need for the prediction market to be regulated by states.
"But this is a top tier issue now for Congress — it's on everybody's radar," he said. "This is going to be a fight," he added. "This is a really important issue [for the states] and the number one thing I would recommend to state legislators is to get involved as an advocate and engage with your federal delegation."
Prediction markets take place on exchange-traded platforms and allow users to buy and sell contracts based on the outcomes of future events like elections, sports and the economy.
For example, during the January state of the state address by Hawaii Gov. Josh Green, nearly $500,000 was bet on which words Green would use during the talk, Brian Kane, executive director of the National Association of Attorneys General, said during the NCSL webinar.
The NCSL in January sent a
While the chief question is whether the federal government or states will regulate the action, the prediction markets represent a potentially huge new revenue stream for states, similar to state-run sportsbooks, which only became legal in 2018. In 2025, consumers legally bet more than $157 billion on sporting events, creating more than $3.2 billion in state sports wagering tax revenue for states that allow the practice,
In 2025, total prediction markets activity exceeded $44 billion, according to Gambling Insider, with activity growing rapidly in 2026.
"The stakes are real here," said Sanam Hooshidary, NCSL's legislative specialist for state-federal affairs during the webinar. "We're talking about billions of dollars in gaming tax revenue."
While 90% of the trading action relates to sports, it's likely the platforms will branch out into other forms of gambling, and that could eat into some existing state operations, Cylke said.
"If the CFTC is going to allow this, [the companies] are only limited by their creativity," he said. "They could have a secondary lottery," he said. "There's a lot of risk for a lot of different state regulated industries in the gaming space. If you have a lottery in your state, it's worth having a conversation."
Forty-five states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands have government-operated lotteries, according to the North American Association of State and Provincial Lotteries.
Oregon, Florida and West Virginia are among the states that issue bonds backed by their lottery revenue. The Maryland Stadium Authority uses lottery revenue to repay bonds issued to finance school construction and subsidize professional sports stadiums.
During fiscal year 2024, U.S. lottery sales totaled over $113.3 billion, contributing $30.6 billion to state governments after paying prizes and covering operational costs, according to the NASPL. Much of the revenue go to traditional infrastructure investments, K-12 education and general funds.
Florida led the U.S. with traditional game sales of $9.4 billion in fiscal 2024.
While Florida's director of bond finance Ben Watkins agrees prediction markets should be regulated, he said he remains unworried about the prospect of the revenue eating into his state's lottery revenue.
"What I was pleased to learn over time through experience is that there's very little that affects the lottery and its revenue stream adversely, even during times of economic weakness," Watkins told The Bond Buyer.
The state was originally worried that online gambling or video lottery terminals would cannibalize lottery revenues, Watkins said, so it tweaked the policy to allow the state to tap that revenue to support the credit if need be.
"Also, it's an entirely different demographic that's buying lottery tickets from who would go online and gamble on the prediction market," he said. "That's not to say that the prediction market isn't a big problem that needs to be addressed in same way from the regulatory standpoint," he added. "It's just legalized gambling."
A spokesperson for the Oregon Lottery said the state has not yet observed any impact. "We will be keeping an eye on the evolving market," the spokesperson said.
