In just eight short years, sports gambling has gone from an illegal enterprise in the United States to a booming business that processes $220 billion worth of bets each year. This weekend alone, some $1.8 billion is set to be wagered on Super Bowl LX.
The rapidly expanding pot of money at stake has stoked fierce competition among sites like FanDuel, DraftKings and BetMGM to take bets on everything from which country will capture the most medals at the Winter Olympics to who will win the Masters golf tournament.
But the traditional gambling companies are facing formidable new challengers for their betting handle in the form of prediction markets like Kalshi and Polymarket, which by one estimate siphon off about $8 billion worth of wagers from sports books each year.
Now the turf battle has turned into a legal brawl over what, exactly, counts as sports gambling.
Kalshi and Polymarket argue that bets made through their apps are different from bets made at a casino, and therefore their businesses are not subject to gambling taxes or regulations. After a federal ban on gambling was effectively lifted by a Supreme Court decision in 2018, the choice of whether to legalize sports gambling was left up to each state.
So far, 39 states and Washington, D.C., have made gambling on sports legal. Traditional sports betting, even on apps like DraftKings, is available only to bettors in those markets. But prediction-markets sites allow people to bet even in states that haven’t legalized betting on sports. That’s one reason that gambling apps have added their own prediction-markets products.
State gambling commissions, attorneys general and customers have responded to the claims that prediction markets operate under different rules with a wave of lawsuits. At least 20 federal lawsuits in more than seven states have been brought against prediction markets over sports betting, including a class-action lawsuit filed this week against Polymarket by one of its users this week in New York.
On Monday, New York Attorney General Letitia James urged consumers to avoid using prediction markets to bet on the Super Bowl, writing in a statement that “many operate as unregulated gambling.” (In October, the prediction market Kalshi sued New York’s gambling regulator after it accused the company of operating as an unlicensed sports wagering operation.)
As court battles play out, the gambling industry has lobbied hard to shut prediction markets down. The American Gaming Association, an industry lobbying organization, along with the Indian Gaming Association, sent a letter to Congress last month urging legislators to address prediction markets that “are indistinguishable from legal sports betting.”
The A.G.A. has also published a calculator that it says shows how much state tax revenue has been lost because bets were made on prediction markets (by its count, more than $400 million so far).
Prediction-markets companies are vying for political influence as well. In December, a group that includes Kalshi, as well as the trading app Robinhood and the crypto platform Coinbase, which have recently added prediction markets to their apps, created a lobbying organization called the Coalition for Prediction Markets. Kalshi appointed Donald Trump Jr. as a strategic adviser last month, and on Thursday announced new checks on bad behavior like insider trading and market manipulation.
The two sides have been trading verbal jabs, too. After Polymarket C.E.O. Shayne Coplan said regulated sportsbooks were a “scam,” DraftKings co-founder and C.E.O. Jason Robins told DealBook: “We always prefer when people take the high road and don’t bad mouth us, but I’ve been doing this for a long time, and it’s just the nature of it.”
A difference of regulator
Popular prediction markets provide a platform for users to create, and wager on, event-based contracts — futures, essentially. Unlike a casino, they don’t take the other side of their users’ bets, so they don’t win when their users lose.
They are regulated by the C.F.T.C., rather than state gambling commissions, which oversee brick-and-mortar casinos like MGM as well as online sportsbooks like DraftKings.
Prediction markets argue that their federal regulator pre-empts any state laws. “There’s a century of federal regulation at the C.F.T.C. that is really good and trustworthy and can be relied on,” said Sean Maloney, a former Democratic congressman who leads the Coalition for Prediction Markets.
The C.F.T.C. has recently thrown its support behind prediction markets, with Chairman Michael S. Selig saying last month that the agency “has the expertise and responsibility to defend its exclusive jurisdiction” over the type of event contracts offered by prediction markets.
Selig also withdrew a Biden-era rule proposal that would have banned prediction markets from offering political and sports-related events contracts.
Ongoing cases
Challenges to sports prediction markets have won early victories. In November, a federal judge in Nevada blocked Kalshi from offering sports contracts in the state, writing that the company’s interpretation of sports-related wagers “upsets decades of federalism regarding gaming regulation.” (The litigation is currently paused while Kalshi’s appeal to the Ninth Circuit is considered.) The state’s gaming regulator won a temporary restraining order against Polymarket last month.
Also last month, Massachusetts Attorney General Andrea Joy Campbell secured a preliminary injunction in her lawsuit against Kalshi, claiming that if the company wants to offer sports-related wagers in Massachusetts, it “must play by our rules — no exceptions.” (It, too, has been delayed.)
Ohio, whose casino control commission sent a cease-and-desist letter to Kalshi in October, cited the Massachusetts ruling in its ongoing lawsuit with the company.
Uneven stakes
Losing out on sports betting could be devastating for prediction markets. Kalshi’s own data shows that $12.5 billion of its total trading volume comes from sports-related contracts, compared to $4.7 billion for all other categories combined. About 90 percent of the transaction fees it collects comes from sports events.
In November, Kalshi warned that halting its sports prediction markets in Massachusetts alone would require it to liquidate $650 million in open derivative contracts.
The gambling industry may have less to lose. Chad Beynon, a senior analyst at Macquarie Group, told DealBook that the threat prediction markets pose to sportsbooks is overblown. “The product is inferior,” Beynon said, noting that bettors cannot engage in parlays and in-play bets, which have become the most popular features of traditional sports betting and which account for roughly 30 percent of all bets placed.
Moreover, the vast majority of sports-related wagers on prediction markets come from states that do not have legalized sports betting, like Texas and California. Although some volume is being siphoned from sportsbooks to prediction markets, Beynon said, it’s not enough to do serious damage to the bottom lines of big players like DraftKings and FanDuel.
Along for the ride
The biggest winners could be apps that play both sides. At their onset, online sportsbooks such as DraftKings, FanDuel and Fanatics aligned themselves with casinos to better navigate state gambling regulations. In recent months, however, the online operators have dropped out of the A.G.A. and started their own prediction markets.
In a statement, Fanatics, which was the first of the betting apps to create its own prediction market, Fanatics Markets, in early December, wrote: “While we respect the work that the A.G.A. does for the regulated gaming market, we have a difference of opinion on what that means when it comes to prediction markets.”
DraftKings was not far behind, starting DraftKings Predictions in 38 states. “We don’t want to be playing from behind,” said Robins, the DraftKings co-founder. “We’re not satisfied if we’re not doing a better job than our competitors and winning more share than our competitors.” As for leaving the A.G.A., Robins said there was a “lack of alignment” on prediction markets.
Online sportsbooks can also easily fall back on their core business model if the gaming industry, lawmakers and state attorneys general win their fight against prediction markets.
The real test will come if Democrats take back the White House and go after prediction markets, Beynon said: “These sportsbook companies want to be fast, they want to be active, they want to get a good return on what they’re spending right now, knowing that this could go away in 2028.”
IN CASE YOU MISSED IT
Elon Musk made the biggest merger in history. Two companies he controls, SpaceX and xAI, combined in an all stock deal that creates a $1.25 trillion giant. The deal gives xAI a financial lifeline and sets up Musk to put data centers in space. The combined company is said to be considering a June I.P.O.
Markets bounced back after a week of A.I. jitters. The release of new tools by Anthropic that show the potential for A.I. to displace software sent software stocks tumbling, as private credit firms that lend to software companies were also affected. Elsewhere, shares of Amazon and Google sank after the companies reported plans to continue investing heavily in A.I. infrastructure, which raised questions about whether the bet will ever pay off. Crypto was also hit hard this week, with Bitcoin dropping to its lowest price since President Trump was elected.
Powerful men faced questions about their Epstein ties. The Justice Department’s latest release of files revealed new information about the disgraced financier’s connections in Silicon Valley, Hollywood, royals and more. Among the boldfaced names in the release were those of Bill Gates, Elon Musk, Howard Lutnick, Marc Rowan and Brad Karp, who resigned as the head of the major law firm Paul Weiss.
More big deals: The Equal Employment Opportunity Commission said it was investigating bias against white workers at Nike. Trump said he had reached a new trade deal with India. And Democratic state fiscal chiefs protested the federal immigration chaos.
Super Bowl ad man
Jeff Goodby, a co-founder of the San Francisco ad agency Goodby Silverstein & Partners, has spent decades making Super Bowl ads and worked on iconic campaigns like “Got Milk?”
This year, his agency made Xfinity’s first Super Bowl ad, which stars the original cast of “Jurassic Park” and portrays a humorous version of the island with better Wi-Fi.
The best ideas, he says, often “come from a human truth, not a familiar character, not a familiar situation.”
DealBook contributor Marty Swant spoke with Goodby about this year’s Super Bowl ad trends, the process of making them and how things are changing in a multi-screen world. The interview has been condensed and edited.
What was your first Super Bowl ad?
Probably the first one I directed was the [2004] Clydesdales ad for Budweiser, where the little donkey is dreaming of being a Clydesdale. This is probably naughty to say, but it was hard to sell that idea to Bud. Like two years of selling it.
Finally I went, “All right, I’ll direct it,” and they said, ‘OK, the guy’s putting his neck on the chopping block. Great.’
What goes into deciding whether to do an ad?
Nowadays, it starts with money. I’m not just talking about buying the media, which is what it used to be. Now it’s the money to get a bunch of celebrities involved that have a really big social media footprint.
There’s always the debate about whether Super Bowl ads are worth the high cost (this year, $8 million on average for a 30-second spot). How do you measure impact today, and how is it changing as attention fragments?
Everybody’s going to judge whether it’s worth it in different ways. Some people are going to be more than happy if Arnold Schwarzenegger comes to their sales meeting that year as part of the deal, and they don’t care about what happened on the game or the social media.
But other people want other things. We did an campaign where the restaurant Denny’s gave away two million free Grand Slam breakfasts the next morning. That’s what they wanted people to remember.
Where did the “Jurassic Park” idea come from?
It came out of “Imagine That,” Xfinity’s new tagline. Somebody said, we could have the Xfinity system somehow keep Jurassic Park open and safe instead of closed and dangerous.
The first thing we thought was that the level of difficulty is just too high. We have to get that through Universal, we have to get through Steven Spielberg, we have to get all of the actors involved to want to be in it. Slowly but surely, it happened. [Spielberg] is very helpful in these things, by the way.
What’s your take on the role of A.I. in this year’s ads?
A.I. is kind of a magic trick that for a while will seem interesting, but then once we figure out how the trick is done, it gets less interesting. For instance, you can get a cat or dog or an elephant and make him or her talk, and that’s really fascinating. In a year or so, that’s going to look kind of tired. It’s getting tired already. It doesn’t blow your mind to see it done in a commercial.
What trends are you seeing with this year’s ads?
I thought this was going to be the year where A.I. was going to be the big thing. What can A.I. do that you’ve never seen before? And what kind of jokes can we make about A.I. doing things that make potato chips better?
There are fewer A.I. jokes and executions than I thought there would be. The thing that I’ve noticed is everybody is paying the gate on using celebrities. And I think the next step is to figure out something else.
Quiz: Heavy medal
This question comes from a recent article in The Times. Click an answer to see if you’re right. (The link will be free.)
Thanks to leaps in gold and silver prices, an Olympic medal is worth a lot more today than it was during the last winter games — at least in pure market terms.
Gold medals these days are mostly made of silver, with six grams of thin gold plating on the outside. In 2024, that made the metal alone worth $1,021.
Based on current market prices, how much is the material in one Olympic gold medal worth today?
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