We learned a lot about prediction markets and sports event contracts in 2025 after Crypto.com debuted the product in the final days of 2024.
But there is still more we don’t know.
As InGame looks back on 2025, here are some of the biggest questions that remain unanswered.
Who will win the battle for market share?
Kalshi has the head start, Polymarket has brand recognition from its non-U.S. exchange, and the sportsbooks have the most familiarity with the sports betting customer. Robinhood, when it launches its own exchange with Susquehanna, will have access to the stock trading customer.
All have plenty of money to spend on customer acquisition, so expect something of an ad blitz.
The legacy prediction markets own their exchanges, as will DraftKings soon, while FanDuel, Fanatics, PrizePicks and Underdog are tied to other exchanges — a path that may offer less flexibility but could mean lower operating costs.
The exchange model is a naturally winner-takes-all environment. Whoever wins the most volume can offer the best prices and the widest range of bets, which would make them the natural option for more customers to flock to.
Whoever comes out of 2026 in the lead may be very hard to catch, unless the courts step in.
Are the top prediction markets worth their 11-figure valuations?
Kalshi and Polymarket both raised at “Decacorn” valuations in 2025, a sign of how large some believe the opportunity ahead of them could be. Kalshi CEO Tarek Mansour says prediction markets could one day rival stock markets in volume.
They’re a long way from that, but there’s no doubt that their growth has been rapid. Kalshi processed more than $28 billion worth of trades in 2025, including more than $6 billion in December alone.
Revenue is only a small share of volume, but Kalshi looks set to make almost $70 million in fees in December.
The prediction market is already generating plenty of revenue. The next step is converting that into profit and ensuring investors get a healthy return. Being privately held, Kalshi doesn’t disclose much about its spending. But the decision by listed sports betting operators DraftKings and FanDuel, as well as the recently IPO’d Gemini, to get into the prediction market world may offer some kind of input on what the costs look like.
For Polymarket, it may take even longer to figure out if it will justify its value. Its global exchange still charges no fees, and in the U.S. its fees will be minimal. Major Polymarket investor Intercontinental Exchange (ICE) said it was most interested in the upside from non-sports markets, but it may take longer for those to mature.
Still, this is a question that doesn’t need to be answered in 2026. Investors will want to see progress towards profits, but they may be happy to wait longer to actually see serious profitability. Sportsbooks, after all, took years after the repeal of PASPA to turn profits in the U.S.
What will regulators do about sportsbooks’ forays into event contracts?
FanDuel, DraftKings and Fanatics’ strategies in prediction markets appeared to come with an implied statement on where the line is for gaming regulators.
Offering sports event contracts in a state where you already have a sportsbook license? That seems to be a step too far for the big sportsbook operators. But offering them elsewhere, even as some states warn that they could take action over extraterritorial activity? That appears to be a risk the big sportsbooks are willing to take.
So far, they haven’t faced much pushback from regulators for their prediction market launches. Underdog lost its license in Arizona for extraterritorial prediction market activity, but besides DraftKings and FanDuel withdrawing from Nevada – where they don’t offer online sports betting – the biggest sportsbooks’ existing operations will be safe. If that continues through 2026, then it appears the sportsbooks and regulators will have found an equilibrium.
Are prediction markets stealing revenue from sportsbooks?
So far, the best evidence appears to say no. Looking at sportsbook performances, you’d struggle to find any evidence of a new product threatening revenue. A number of states reported record sports betting handle in recent months. That may have been boosted somewhat by recycled winnings after customer-friendly results early in the NFL season, but it isn’t what you’d expect to see if prediction markets were taking a large share of business away.
But can it last? Prediction markets are still new, with much of the public likely still unfamiliar with them, and there was limited competition in 2025. Their versions of parlays, the big money-makers for sportsbooks, are especially new. Wall Street still appears worried about the potential for prediction markets to steal business from sportsbooks, with shares in Flutter Entertainment and DraftKings down almost 30% since late August.
On the other hand, there is an argument that the game isn’t zero sum, and that prediction markets instead offer a different product for a different type of customer. It will probably be clearer in 2026.
Can prediction markets offer new types of bets?
For now, prediction markets have offered essentially the same type of bets that you can get at sportsbooks, albeit sometimes on topics that sportsbooks might never have offered bets on.
But could they innovate in terms of product?
Kalshi’s and Railbird’s filings with the Commodity Futures Trading Commission (CFTC) make reference to “variable payout” markets, though they don’t seem to have made any effort to launch these types of bet. Those products would resemble “spread betting,” which was popular in the U.K. in the early 2000s, or the “points betting” feature that PointsBet once offered in the U.S.
For spread and points wagering, if you bet on a team to cover the spread and they do so by one point, you receive a small payout. If they cover by 20, you receive a much larger payout. But if the team fails to cover, it works the same way, meaning potentially large losses if a favored team is blown out.
Conditional markets – basically the opposite of a parlay, allowing users to bet on one event only if another event also happens – are another potential area of innovation. You could bet that the Bills would win if Josh Allen throws three touchdowns; if he doesn’t, it’s a push.
Startups already seem to be making an effort to create a non-sports version of conditional markets. But given what we saw in 2025, if the non-sports version gains traction, a sports version will be on the way eventually.
Are they (legally) gaming?
It’s worth emphasizing that the biggest reason this question hasn’t been answered is that it isn’t necessarily all that central to the future of prediction markets. The question of whether sports event contracts involve betting, gambling, gaming or any similar concept is fairly tangential to their legality at this point.
If the CFTC or a court said that sports event contracts involve gaming, that step alone wouldn’t mean the end of sports event contracts. And for that reason, courts haven’t seriously spent time on the question.
But if the CFTC says they don’t involve gaming, it could give prediction markets greater certainty, effectively ensuring that it cannot block any sports contracts on public interest grounds.
New CFTC chair Michael Selig, as the regulator’s only commissioner at first, will have an unusually singular level of control over the commission’s decisions in 2026. And if a letter he worked on as outside counsel for investment fund Paradigm in 2024 is any indication, he has a very narrow definition of what it means for a contract to involve gaming.
The letter argued that for a contract to involve gaming, the bet itself must be on the outcome of a game played for stakes – for example, the winner of a poker game.
How are prediction markets taxed?
If you took your business to prediction markets in an effort to avoid the 90% deduction cap that threatens to ruin the livelihoods of pro bettors, there’s no guarantee you’ve escaped a huge tax bill.
A product being regulated as a commodity futures contract doesn’t always mean it must be taxed as one. The IRS can make its own decisions on how to classify a source of income independent of how other government agencies treat it, KPMG Lead U.S. Tax Partner for Gaming Robert Stoddard told InGame in July.
Even if event contracts are not taxed like sports betting, there are a host of other tax-related questions to figure out, such as whether contracts should be taxed on their price when they were purchased or their fair value at the end of the year.
Meanwhile, a person who makes money from financial products can be classified as either an “investor” or a “trader,” depending on how actively they buy and sell certain securities. Traders, who make more day-to-day decisions, tend to get more favorable deductions. If sports event contracts are financial products, who is “investing” in them and who is “trading” in them?
Are they actually legal?
Don’t expect this to be solved in 2026. There seems to be little consensus in the courts so far.
One District Court (New Jersey) ruled Kalshi’s way on the question of issuing an injunction; another (Maryland) ruled the way of the state; a third (Nevada) ruled Kalshi’s way, then the judge changed his mind and ruled in favor of the state on entirely different grounds to the decision in Maryland. All three cases have been appealed to circuit courts.
A handful of other district courts are yet to decide on the question of prediction markets versus states. Two more cases have been brought by tribes, one of which is in the appeals circuit. In Massachusetts, the state is suing Kalshi in state court.
With this many different courts involved, and those that have made decisions already differing in their opinions on the case, it seems inevitable that this gets to the highest court in the land at some point, but likely not any time soon.
The Supreme Court usually gets involved if two Circuit Courts come to different conclusions but generally waits until there’s a difference in final rulings, not injunction decisions. Given that no circuit court has even decided on an injunction yet, this question is likely one for 2027.
