On July 19, 2026, Ferran Torres sent a dramatic, late-game strike into the back of the net in the 106th minute of the 2026 FIFA World Cup Final.[i] While securing Spain’s historic victory over Argentina and undoubtedly resolving gentlemen’s bets around the globe, Torres’ game-winning goal carried consequences far beyond the pitch and neighborhood pubs: it settled the multi-billion-dollar question underlying millions of bets placed across the United States.[ii] Whether those bets were placed with traditional sportsbooks or prediction markets, however, raises concerns for federal and state regulators, moving the conversation from the soccer field to the legal field.
Traditional Sports Betting vs. Prediction Markets
Chances are, most users placing bets on traditional sports gambling platforms and prediction markets view the products as functionally similar.[iii] Indeed, both offer users the opportunity to put money down on uncertain future events, such as which team will prevail as the 2026 FIFA World Cup champion.[iv] Yet, despite users’ ability to speculate on the same sporting events for the possibility of financial gain or loss, the two products rely on fundamentally different transaction structures.[v]
Traditional sports gambling platforms operate by allowing users to wager against a professional sportsbook, commonly referred to as the house.[vi] The house sets the odds by calculating the probability of a future outcome and building in a margin to ensure long-term profit.[vii] These odds convey useful information to users, such as the relative likelihood of an outcome and the payout associated with a successful wager.[viii] As a result, the house acts as the counterparty to all and bears the financial risk if a user wins, particularly when an unlikely outcome occurs.[ix]
Conversely, prediction markets operate as neutral platforms.[x] Specifically, users of prediction markets trade peer-to-peer, buying and selling event contracts whose value depends on the probability of a defined future event, while the platform itself merely facilitates the trades and collects transaction fees.[xi] To illustrate this type of transaction, consider the following scenario:
A prediction market user purchases 100 “yes” contracts on the uncertain future event, “Will Spain win the 2026 FIFA World Cup Final?”[xii] If each “yes” contract is priced at $0.60, this implies the market collectively expects that there is a 60 percent chance that Spain will be the tournament champion.[xiii] Accordingly, if Spain wins the game, the user is paid $1 per contract, generating $100 in total payout and $40 in net profit.[xiv] If Spain loses, however, the user collects $0 and loses their $60 investment.[xv]
Thus, by taking a hands-off approach and allowing users to trade among themselves, prediction markets assume no responsibility for the outcome of the future event, avoiding the financial risk borne by traditional sportsbooks.
The Split Legal Landscape
While seemingly insignificant to those betting on soccer games, the distinction between sportsbook and prediction market transactions has become a central issue in an escalating dispute over the regulation of prediction markets.[xvi] According to federal regulators and major prediction market platforms, including Kalshi and Polymarket, event contracts traded on prediction markets do not constitute sports gambling, which has historically fallen under the states’ police powers.[xvii] Instead, they argue that event contract transactions are swaps[xviii] within the meaning of the Commodity Exchange Act (CEA). This grants the Commodity Futures Trading Commission (CFTC) exclusive authority to regulate swaps traded on designated contract markets (DCMs), the federal exchanges on which platforms like Kalshi and Polymarket are registered to operate.[xix] Under this interpretation, the CEA preempts state gambling laws, ultimately leaving the CFTC with jurisdiction over prediction markets.[xx]
In direct opposition to the CFTC’s position, forty-four states[xxi] have taken the stance that prediction markets are not legitimate swaps under the CEA.[xxii] State regulators instead argue that prediction markets more closely resemble sports betting in function and effect, despite underlying structural differences between the platforms.[xxiii] Further, the states challenge the CEA’s broad definition of swap, asserting that its language could encompass sports gambling, an area traditionally within the states’ regulatory authority.[xxiv] On this view, the states contend that prediction market transactions are wagers subject to state gaming laws, rather than swaps under the overly broad jurisdiction of the CFTC.[xxv]
Amid the competing views of the CFTC and the states, the federal circuit courts are similarly divided over the regulation of prediction markets.[xxvi] In April 2026, the Third Circuit first affirmed the CFTC’s exclusive jurisdiction over prediction markets. That position, however, was subsequently challenged when the Ninth and Sixth Circuits held in August and September, respectively, that the CEA does not preempt state gambling laws.[xxvii] Given these conflicting holdings and a similar appeal pending in the Fourth Circuit, the line between traditional sports betting and prediction markets remains blurry. Thus, this circuit split suggests that the question of whether the CEA preempts state gambling laws is on track to reach the Supreme Court for review.[xxviii]
North Carolina’s Cooperative Approach
While the regulatory landscape of prediction markets remains unresolved, states across the country have adopted a variety of approaches to address the issue.[xxix] For states such as New York, the response has been a hostile one, with state officials issuing cease-and-desist orders in an attempt to ban the prediction market platforms outright.[xxx] Taking a different but equally aggressive approach, Kentucky moved to heavily restrict prediction markets by imposing a 14.5 percent tax on the platforms’ transaction fees.[xxxi] In opposition to these state actions, the CFTC filed federal preemption suits and argued that onerous taxes render prediction market operations economically infeasible in those states that impose them.[xxxii]
Not all states, however, are at odds with prediction market platforms and the CFTC. On July 7, 2026, Governor Josh Stein signed North Carolina’s 2026 budget bill into law, making North Carolina the first state to officially codify the CFTC’s authority to regulate prediction markets in its statutes.[xxxiii] In doing so, North Carolina exempted prediction markets from the rules, licensing requirements, and taxes imposed on traditional sports betting companies.[xxxiv] Notably, rather than extending the 23 percent tax placed on traditional sports betting companies to prediction markets, North Carolina’s 2026 budget bill instituted a mere 6 percent tax on the net revenues of prediction market operators.[xxxv] By acknowledging CFTC authority while implementing a negligible state tax, North Carolina’s cooperative, middle-ground approach has proved successful at avoiding litigation with the CFTC, but has also generated a host of other worries.[xxxvi]
The Revenue Risk: Funding for Collegiate Athletics at Stake
While proponents of North Carolina’s 2026 budget bill argue the 6 percent tax will boost state revenue, critics contend that it is likely to have the opposite effect over time.[xxxvii] In particular, opponents of the bill warn that the minimal tax on prediction markets will incentivize traditional sports betting platforms to rebrand as prediction markets.[xxxviii] This fear is not unfounded considering the recent moves of three prominent sports betting companies, namely DraftKings, FanDuel, and Fanatics, to create and launch their own prediction market platforms.[xxxix] As Senator Julie Mayfield stressed to reporters after the budget bill vote, the possibility of this switch is concerning ‘“[n]ot just for [North Carolina’s] budget, but for the schools that have again come to rely on [sports betting tax] money for their athletic programs.”’[xl]
North Carolina’s sports betting tax revenue is distributed to the state’s general fund and select universities’ athletic programs.[xli] With the exception of North Carolina State University and the University of North Carolina at Chapel Hill, the primary recipients of these tax dollars include North Carolina Central University, University of North Carolina Greensboro, Western Carolina University, and several other schools with smaller athletic programs.[xlii] If sports betting platforms convert to prediction markets, this revenue could run dry, forcing universities to cut their programs, reduce the availability of athletic scholarships, or increase student fees.[xliii] Consequently, North Carolina’s prediction market tax could affect far more than the state’s budget, potentially limiting students’ access to higher education by increasing the cost of attendance.
Did North Carolina Place a Safe Bet?
Regardless of its repercussions, the viability of North Carolina’s prediction market tax is not set in stone. Until the Supreme Court grants certiorari and decides whether the CFTC or the states retain jurisdiction over prediction markets, North Carolinians will be left wondering whether the state placed a safe bet on bets.
[i] Emile Nuh, Ferran Torres on World Cup-winning Goal: ‘It was the best moment of my life’, CNN (Aug. 4, 2026), https://www.cnn.com/2026/08/04/sport/ferran-torres-world-cup-goal-source.
[ii] See Annie Nader, How the World Cup Broke Prediction Market Records, Time (July 20, 2026), https://time.com/partner-content/prediction-markets/how-the-world-cup-broke-prediction-market-records/ (noting that Kalshi’s “tournament-winner market closed with nearly $1.9 billion in trading volume” and “Polymarket’s broader international reach pushed its tournament-winner market to $4.3 billion in trading volume”); Janine Brown, DraftKings Sportsbook Hits New Heights During 2026 World Cup with 650% Increase in Bets, CBS Sports (July 22, 2026), https://www.cbssports.com/betting/news/draftkings-sportsbook-hits-new-heights-during-2026-world-cup-with-650-increase-in-bets/ (highlighting that “over 2 million bets [were] placed in total for the 2026 World Cup Final at DraftKings,” while “total bets surged by 650%” compared to sports betting in the United States during the 2022 World Cup tournament).
[iii] See Jay Cohen & Cora Lewis, Prediction Markets Say They’re Different From Sportsbooks. Gambling Addicts Say It’s All the Same, AP News (May 1, 2026), https://apnews.com/article/kalshi-polymarket-prediction-markets-45ffa90f68402461fcad768ce54caf6d.
[iv] See Kyle Collins, Prediction Markets vs. Sports Betting: Key Differences Explained, Sports Illustrated (Sep. 24, 2026), https://www.si.com/prediction-markets/guides/prediction-markets-vs-sports-betting.
[v] See id.
[vi] See id.
[vii] See id.
[viii] See id.
[ix] See id.
[x] See id.
[xi] See id.
[xii] See Understanding Prediction Markets and Event Contracts, CFTC, https://www.cftc.gov/LearnandProtect/PredictionMarkets (last visited Sep. 30, 2026).
[xiii] See id.
[xiv] See id.
[xv] See id.
[xvi] See Swaps or Sportsbooks? The CFTC’s Expanding Battle Over Prediction Markets, Proskauer (May 28, 2026), https://www.proskauer.com/alert/swaps-or-sportsbooks-the-cftcs-expanding-battle-over-prediction-markets.
[xvii] See Davis Giangiulio, Appeals Court Rules That States Can Regulate Kalshi’s Sports Prediction Markets, Dealing Another Legal Blow to the Platforms, CNBC (Sep. 25, 2026), https://www.cnbc.com/2026/09/25/appeals-court-rules-states-can-regulate-sports-prediction-markets.html.
[xviii] See 7 U.S.C.A. § 1a(47)(A)(ii) (defining swap as “any agreement, contract, or transaction that provides for any purchase, sale, payment, or delivery . . . that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence”).
[xix] Jay B. Sykes, Cong. Rsch. Serv., LSB11441, CFTC Issues Proposed Rule Regarding Prediction Markets (2026); See also Industry Filings: Designated Contract Markets, CFTC, https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizations (last visited Oct. 1, 2026) (listing Kalshi and Polymarket as designated contract markets).
[xx] See Swaps or Sportsbooks? The CFTC’s Expanding Battle Over Prediction Markets, supra note xvi.
[xxi] See Davis Giangiulio, 44 States Are Aligned on One Thing in Their Fight Against Prediction Markets. It’s About Sports Wagering, CNBC (July 28, 2026), https://www.cnbc.com/2026/07/28/44-states-say-cftc-has-no-authority-over-sports-prediction-markets.html.
[xxii] See Swaps or Sportsbooks? The CFTC’s Expanding Battle Over Prediction Markets, supra note xvi.
[xxiii] See Prediction Markets Are Surging – Here’s What You Need to Know, Stanford Report (Apr. 28, 2026), https://news.stanford.edu/stories/2026/04/prediction-markets-facts-gambling-regulation.
[xxiv] See id.
[xxv] See Swaps or Sportsbooks? The CFTC’s Expanding Battle Over Prediction Markets, supra note xvi.
[xxvi] See Miranda Nazzaro, Appeals Court Rules Against Kalshi, Says Prediction Markets Can Be Regulated Like Gambling, The Hill (Sep. 25, 2026), https://thehill.com/policy/technology/6112365-6th-circuit-rules-against-kalshi/.
[xxvii] See Id.
[xxviii] See Melissa R. Hodgman, Timothy Howard & Leah Winfield, Ninth Circuit Creates Prediction Markets Split, Freshfields (Sep. 4, 2026), https://www.freshfields.com/en/our-thinking/blogs/a-fresh-take/ninth-circuit-creates-prediction-markets-split-102o0a6.
[xxix] See Jennifer Karpchuk & Kyle H. Wingfield, The States Are Coming for Prediction Markets: A New Frontier in Tax Policy, Holland & Knight (July 16, 2026), https://www.hklaw.com/en/insights/publications/2026/07/the-states-are-coming-for-prediction-markets-a-new-frontier.
[xxx] See id.
[xxxi] See id.
[xxxii] See id.
[xxxiii] See id.
[xxxiv] See Will Doran, Prediction Market Betting Would Be Authorized in NC’s New Budget. What It Means for Sports Betting, WRAL News (July 5, 2026), https://www.wral.com/news/nccapitol/prediction-markets-face-new-state-taxes-under-new-nc-budget-sports-betting-july-2026/.
[xxxv] See id.
[xxxvi] See id.
[xxxvii] See id.
[xxxviii] See id.
[xxxix] See Ian Frisch, Prediction Markets and Casinos Go to War Over Sports Betting, N.Y. Times (Feb. 7, 2026), https://www.nytimes.com/2026/02/07/business/dealbook/prediction-markets-sports-betting.html.
[xl] See Doran, supra note xxxii.
[xli] See Andrew Pomeranz, NC Budget Raises Sports-Betting Tax, Adds Prediction Markets, The Carolina Journal (July 10, 2026), https://www.carolinajournal.com/nc-budget-raises-sports-betting-tax-adds-prediction-markets/.
[xlii] See id.
[xliii] See Brianna Atkinson, Sports Betting Brought in $21 Million for NC’s Public Universities. Here’s How They’re Spending It., WUNC News (Jan. 17, 2025), https://www.wunc.org/education/2025-01-17/sports-betting-revenue-public-universities (quoting Western Carolina University’s Director of Athletics, Alex Gary, who suggested that without sports betting tax funds, the university would have to ‘“continue to ratchet up on student fees”’).
