State Lawmakers Put Prediction Markets on Notice Over Gambling

State lawmakers confronted the prediction-market industry face to face at the National Conference of State Legislatures’ 2026 Legislative Summit, pressing a Kalshi executive on stage over whether the platforms are financial exchanges or unlicensed sportsbooks.

The session, titled “Behind the Bet: Inside the Prediction Markets,” put Sara Slane, Kalshi’s secretary and head of corporate development, in front of the state legislators and staff gathered for the summit. According to the NCSL’s own report on the session, panelists warned lawmakers to brace for a wave of sports-related contracts that may not fit existing state or tribal regulatory structures.

The core dispute is a definitional one with real money behind it. Prediction markets such as Kalshi and Polymarket let users buy and sell contracts tied to the outcomes of future events, including sports. The platforms argue they are federally regulated commodity exchanges, not gambling operators. States counter that the products are a backdoor around state gambling regulation and the taxes that come with it.

Kalshi’s case: “We are not the house”

Slane told lawmakers the exchanges are fundamentally different from sportsbooks because they match buyers and sellers rather than taking the other side of a wager.

“A swap is a contract where you can buy a yes/no outcome on what you believe will happen in a future event,” she said, per the NCSL’s account. “The big distinction on sports betting versus sports contracts is we are not the house.” She said Kalshi is regulated by the Commodity Futures Trading Commission, charges a transaction fee rather than profiting when users lose, and that “all of our trades are transparent, unlike a sportsbook.”

She also argued the federal framework offers uniform consumer protections that a state-by-state system cannot match, citing anti-money-laundering rules, deposit limits, timeouts, self-exclusion tools, and a ban on athletes and referees trading sports contracts.

The state and tribal pushback

Michael Hoenig, vice president and associate general counsel for gaming for the Yuhaaviatam of San Manuel Nation in California, rejected the premise that the absence of a “house” means the activity is not gambling, noting that pari-mutuel horse racing and bingo operate the same way. For tribes, he framed the stakes in governmental terms.

“Tribes see this as an existential threat to not just the industry and the revenue that they’re building, but as an existential threat to their ability to function as governments,” he said, adding that gaming revenue funds education, healthcare, housing, clean water, and infrastructure.

Mick Mulvaney, executive director of the Gambling Is Not Investing Coalition and a former congressman and acting White House chief of staff, said his objection is federal preemption of state choices. “Changing how you get paid doesn’t change the nature of the underlying transaction,” he said. “The underlying transaction is betting.”

The fight is already well beyond a conference panel. A coalition of 44 state attorneys general wrote to the CFTC the week of July 27, 2026, arguing the agency lacks authority over sports-related event contracts, which they say fall under state gambling regulation, CNBC reported. The CFTC, for its part, has sued states to defend its jurisdiction over the markets.

What states have already done

The panel landed on top of an active legislative year. According to the NCSL’s 2026 prediction-markets legislation tracker, updated July 22, 2026:

• At least 15 states addressed prediction-markets legislation in the 2026 session.
• Six states enacted laws: Connecticut, Illinois, Kentucky, Minnesota, North Carolina, and Tennessee.
• Kentucky imposed a 14.25% excise tax on a prediction-market operator’s transaction fees; North Carolina set a 6% tax on net trading-fee revenue; Illinois added a 1.75% transaction tax on exchange wagers, rising to 3.5% after a licensee’s first five million exchange wagers in a fiscal year.
• Tennessee made it a felony to try to influence the outcome of an event while holding a contract that pays out on it.

Gaming.net has tracked the escalating conflict as it moved through the courts and statehouses, including a Washington judge’s ruling that Kalshi is likely an illegal gambling site, Nevada’s order forcing Kalshi to geofence its sports markets, a federal court freezing Minnesota’s prediction-market ban, and a federal bill that would push sports betting off prediction markets.

Where it goes from here

The panelists agreed on at least one point: the dispute is headed for more litigation, and likely the U.S. Supreme Court. Mulvaney told the room that the question is probably already live in their own states.

“My guess is that discussions are happening in your state legislature at some level right now,” he said, “even if you don’t know about it.”

For the players and bettors caught in the middle, the near-term picture is a patchwork. The platforms keep operating nationwide under federal oversight while states race to tax, restrict, or ban them, and the courts sort out who actually has the authority to decide.