Prediction Markets Face Divided Courts and a Wider Political Fight in the U.S.

Prediction markets are expanding under federal protections that remain contested in court, while Congress has not moved legislation that would settle how they should operate. For PSPs and other high-risk providers, the practical result is familiar: federal registration does not yet mean clean nationwide access, and it does not protect a platform from state gambling enforcement.

1. Sections III and IV of K&L Gates’ 2026 mid-year report describe two overlapping fights: what restrictions Congress should impose on event contracts, and whether existing federal derivatives law overrides state gambling laws. The Trump administration’s defense of exclusive federal oversight has intensified both disputes.
2. Congress has produced proposals, not a finished framework. At least 21 bills on prediction markets had been introduced in the 119th Congress, but none had left the committee where the report was written. One narrower measure did take effect: an April Senate resolution, adopted unanimously, prohibited senators and Senate employees from trading on prediction markets.
3. The pending bills cover both users and platforms. Proposals include restrictions on trading using material nonpublic information, outright participation bans for categories of government officials and, in some versions, family members. The Campaign Funds Integrity Act would prohibit using campaign funds for prediction-market transactions, with monetary and criminal penalties.
4. Platform-focused bills go further. The STOP Corrupt Bets Act would bar contracts involving sports, military action, elections and federal government actions. The Death Bets Act would prohibit contracts concerning war, death or similar activities. Other proposals address deceptive advertising, promotional claims and age verification, including mandatory facial recognition.
5. Lawmakers are also sketching different supervisory models. The Prediction Market Act would create consumer-protection and innovation advisory councils within the Commodity Futures Trading Commission (CFTC) and require studies of enforcement adequacy and SEC-CFTC jurisdiction. The Prediction Markets Security and Integrity Act would condition operations on authorization under state wagering programs approved by the U.S. attorney general, with advertising standards, gambling-treatment funding and other safeguards.

The thing is, prediction markets are not being pushed into a single regulatory box. They are being pulled between the CFTC, state gambling regimes and a Congress that has plenty of ideas and no consensus. For payment providers, that means account access, sponsorship risk and merchant onboarding still depend on which side of that triangle a platform ends up on.