One Federal Licence, Fifty States: What Prediction Markets Mean for the Sportsbook Supply Chain

The prediction-markets fight is usually read as a turf war between the CFTC and state regulators. For US sportsbook operators and their B2B suppliers, the more immediate question is what a single federal licence does to a business built on fifty state ones, and why capital and distribution are already moving before the courts decide.

The legal fight around prediction markets has largely been framed as a jurisdictional dispute between the CFTC and state AGs.

For US sportsbook operators and their suppliers, that framing misses the more immediate issue. The real question is what happens when a federally regulated event-contract platform competes directly against operators carrying state-by-state licensing costs, gaming taxes, compliance obligations, and market-access agreements.

That competitive imbalance is no longer hypothetical. It is already shaping capital flows, partnership strategy, and infrastructure investment across the sports betting sector. In practice, federally regulated event-contract platforms, most notably Kalshi, Crypto.com, Robinhood and more recent entrants such as ProphetX and Novig, are already operating across multiple states while state-licenced sportsbooks continue carrying state-by-state licensing and tax burdens.

The Regulatory State of Play

On April 6, 2026, a 2-1 panel of the Third Circuit in KalshiEX LLC v. Flaherty (No. 25-1922) affirmed a preliminary injunction blocking New Jersey from enforcing its gambling laws against Kalshi – the first federal appellate court to hold that the Commodity Exchange Act preempts state gaming law as applied to sports event contracts traded on a CFTC-registered DCM. The majority held that Kalshi's contracts are swaps under the CEA, that the CFTC has exclusive jurisdiction over trades on designated contract markets.

The Ninth Circuit has taken a different procedural approach. In February 2026, it denied Kalshi's emergency motion for an administrative stay, opening the door for Nevada to pursue enforcement action. On May 21, the court further denied Kalshi's motion for a stay pending appeal, allowing enforcement proceedings in Nevada and Washington to continue while the underlying disputes are litigated.

The Third Circuit's ruling now stands in tension with the Ninth Circuit's willingness to allow state enforcement actions to proceed pending litigation. The Fourth Circuit heard oral arguments in the Maryland case on May 7. The Sixth Circuit has conflicting district decisions from Tennessee and Ohio still pending.

The next battleground is pointing towards the Supreme Court, with a  formal petition that could come as early as July 2026; the operative planning window is the 12 to 18 months of the SCOTUS process that follows.

Meanwhile, the CFTC and DOJ have gone offensive in parallel. They jointly sued Arizona, Connecticut, and Illinois on April 2, asserting federal pre-emption of state enforcement actions. On May 19, the CFTC sued Minnesota after Governor Walz signed legislation the agency described as "the first outright ban on prediction markets in the United States." 

The CFTC has also sued New Mexico after its Attorney General filed a state court action against Kalshi. Kentucky is the latest addition to the list, with the lawsuit following a newly enacted 14.25% tax on prediction markets operators’ transaction fees.  

Amidst the uncertainty,  CFTC Chairman Michael Selig's posture is unambiguous; he has told Coindesk that the agency will continue to defend its exclusive authority over prediction markets, arguing that "It doesn't matter if it's on sports, politics, or anything else, if it's a validly offered product within a CFTC-regulated exchange, then we regulate that." 

Another key development is the CFTC's June 10, 2026, Notice of Proposed Rulemaking, which followed an Advance Notice of Proposed Rulemaking that closed for comments on April 30 and reportedly attracted roughly 3,500 submissions. The 267-page proposal establishes a three-step framework for determining whether event contracts involve gaming and whether they are contrary to the public interest under the Commodity Exchange Act. 

Contracts based on aggregate sports outcomes such as final scores, point differentials, and season-long performance metrics are generally treated as more likely to be permissible, while contracts tied to injuries, officiating decisions, pre-collegiate sporting events, and discrete in-game actions are identified as candidates for prohibition. The proposal also signals that casino-style contracts based predominantly on chance would likely be deemed contrary to the public interest. The comment period closes on July 27, 2026.

The Cost-Structure Gap Is Already Material

Here is what the jurisdictional argument translates to in practice. A licenced US sportsbook operator in Pennsylvania pays 36% effective tax on gross gaming revenue. In New York, the rate is 51%. (New York State Gaming Commission, Sep. 16, 2025) 

Operators also absorb per-state licensing fees, compliance costs, responsible-gambling programme costs, geolocation infrastructure, and the fixed overhead of maintaining active regulatory relationships in each jurisdiction. None of that overhead disappears when volume shifts to a competing platform.

Licenced DCM platforms operate under a materially different cost structure, centred on a single federal regulatory framework rather than state-by-state gaming licences and tax regimes. 

For context, the latest data revealed that Kalshi's annualised revenue exceeds $1.5 billion whileannualised trading volume has grown from $52 billion to $178 billion in six months, more than threefold. On May 7, 2026, Kalshi closed a $1 billion Series F at a $22 billion valuation led by Coatue, with participation from Sequoia, Andreessen Horowitz, Paradigm, Morgan Stanley, and ARK Invest, up from a $11 billion valuation reported five months earlier. The firm is currently in talks to raise another round at a valuation of around $40 billion. 

Polymarket's path back to the federal cost structure is more recent and worth noting for what it signals about institutional intent. Banned from US users since a $1.4 million CFTC fine in 2022 for running an unregistered futures exchange, Polymarket acquired QCEX, a CFTC-licenced exchange and clearinghouse, for $112 million in July 2025. The platform made a quiet comeback on December 3, 2025, after the CFTC issued an Amended Order of Designation permitting it to operate as a fully regulated US exchange.

The structural implication is two federally licenced DCMs competing for the same sports-outcome and event-driven trading dollars that state-licenced sportsbooks currently capture, without carrying the state-level cost burden that has defined the sportsbook business model for a decade.

Every moment of regulatory uncertainty is a window during which capital flows disproportionately into the lower-cost federal structure. Even if SCOTUS ultimately limits federal pre-emption, prediction market platforms will have used that window to build distribution, brand recognition, and institutional liquidity relationships that are not easily reversed by a subsequent legal outcome. 

Operators and suppliers modelling only two outcomes, pre-emption holds, or it fails, risk missing the modal scenario: 12 to 18 months of SCOTUS process during which Kalshi, Polymarket, ProphetX, Novig, Crypto.com and Robinhood continue operating and building under federal protection. That scenario requires its own strategic response now, not after certiorari is granted.

Incumbent Operators Are Moving, but Asymmetrically

Both DraftKings and Flutter used their Q1 2026 earnings calls to signal deeper commitment to prediction markets. The nature of those commitments differs, and the difference matters directly to their B2B suppliers. 

DraftKings reported Q1 revenue of $1,646 million, up 17% compared to the same period in 2025. CEO Jason Robins described third-party prediction market-making, trading on rival platforms including Kalshi and Polymarket using DraftKings' own sportsbook trading infrastructure, as "one of our fastest paths to profitability business lines we've ever launched." 

Consumer volume on DraftKings Predictions eclipsed $1 billion in April, with annualised volume exceeding $2.3 billion. The company acquired prediction market exchange Railbird in October 2025 and has outlined plans for a proprietary exchange. Robins also told the Q1 call that DraftKings should "theoretically have one of the top two or three market makers in the world" given its modelling capabilities. 

That is not a client statement about third-party services. It is a signal that internal capability may displace them; a distinction worth tracking by suppliers. 

Flutter reported Q1 revenue of $4.3 billion, but US adjusted EBITDA fell 26% year on year to $119 million, weighed down by its $250 – $300 million full-year investment in FanDuel Predicts and $35 million in Arkansas state-launch costs. Flutter CEO Peter Jackson told the earnings call the company "began market-making services on a major third-party prediction platform in April" – providing liquidity on someone else's exchange while building its own in parallel. 

FanDuel Predicts launched on December 22, 2025, in Alabama, Alaska, South Carolina, North Dakota, and South Dakota, in a joint venture with CME Group. Details of the partnership show that Fanduel bears all the app support costs while the CME shoulders all exchange-related costs. The terms of the partnership further stipulate that the CME group will receive approximately 50% of the gross revenue generated by FanDuel Predicts, before deduction of promotional spend.

The CME/FanDuel revenue split is the template every major incumbent will likely negotiate against; however, in its current state, it is structurally not favourable to existing B2B suppliers. CME Group is capturing 50% of gross revenue for exchange infrastructure and regulatory credibility. 

When other incumbents build or partner into prediction markets, they will reach for institutional derivatives infrastructure, CME, ICE, not their existing sportsbook technology stack. Platform vendors whose differentiation sits in sports-specific pricing engines rather than derivatives trading architecture should be examining whether they would have a seat in that negotiation at all. 

The Flutter cost profile signals something more immediate: a company absorbing an investment expected to reach the upper end of its $250 – $300 million guided range while FLUT (NYSE) investment commitment, share price down approximately 64% from its 52-week high of $313.69 recorded in August 2025, to trade around $97–$98 as of late June 2026. The departure of FanDuel CEO Amy Howe, announced alongside Q1 results on May 6 as part of a broader US restructuring, creates conditions in which cost base scrutiny across the division is likely to intensify. Suppliers with Flutter or FanDuel contracts renewing in the next 12 months should be treating that as a scenario to prepare for, rather than an outcome to wait.

A clear divergence has also emerged between digital-first operators and traditional casino groups: BetMGM's leadership characterised its posture as "defensive" on earnings; Caesars and Penn Entertainment have made no material moves.

How Prediction Markets Are Routing Around the Sportsbook Supply Chain

The league deals assembled by Kalshi and Polymarket are not sponsorship transactions. They are a distribution infrastructure that routes around the data licensing channels that have historically structured sportsbook B2B supply.

In October 2025, the NHL became the first major US professional sports league to licence its branding to prediction market platforms, signing multiyear agreements with both Kalshi and Polymarket that include official data rights, team marks, and broadcast visibility during the Stanley Cup Playoffs and Winter Classic. The UFC and TKO Group followed in November 2025 with Polymarket, integrating prediction market odds into live broadcasts.

MLS also signed a multiyear exclusive deal with Polymarket covering the MLS All-Star Game and MLS Cup in January 2026. MLB also partnered with Polymarket. 

On the media front, the Polymarket/Dow Jones partnership, announced on 7 January 2026, distributes real-time market data to the Wall Street Journal, Barron's, and MarketWatch. These are credentialed official data arrangements, not awareness plays, and they establish a parallel distribution layer that bypasses the incumbent official data licensing structure, underwriting a significant portion of sportsbook supplier revenue.

Robinhood’s vertical integration provides another structural signal.In a joint venture with Susquehanna International Group, Robinhood acquired a 90% stake in MIAXdx (formerly LedgerX), a CFTC-licenced DCM, Derivatives Clearing Organisation, and Swap Execution Facility, completing the acquisition in January 2026 with Susquehanna as day-one liquidity provider. 

Robinhood now holds its own exchange licence and clearinghouse, eliminating its dependence on Kalshi for exchange routing. Kalshi's Series F announcement separately cited scaling broker integrations for hedge funds, asset managers, proprietary trading firms, and insurance companies. 

When DraftKings builds market-making capability through Railbird, Robinhood owns its own DCM, and Kalshi builds direct institutional access, the intermediary value capture that has defined sportsbook B2B supply chains faces compression from multiple directions simultaneously, a structural risk that is worth mapping now, even if the timing and extent remain uncertain.

Going by these developments, trading and risk system vendors face a potential client termination risk if they are underpricing the strategic direction their clients are signalling. DraftKings has publicly stated it expects to be among the world's top market makers using its own modelling infrastructure. 

Suppliers whose contracts are built on providing that capability should treat that statement as an advance notice of displacement, not a routine investor relations boast. Payment processors face a structurally distinct but equally acute risk: one of Kalshi's operating advantages in states under federal protection is onboarding users and processing transactions without the state-level approvals that currently gate sportsbook payment flows. 

If event contracts trade at scale on a single federal licence, the multi-state payments licensing overhead that currently functions as a moat for established gaming payments processors could shift from a barrier to entry into a relative cost disadvantage. That outcome is not certain, but processors whose value proposition is centred on regulatory navigation in state gaming regimes should be stress-testing their addressable market under that scenario before their next renewal cycle.

The Overlooked Tribal Layer of the Federal Pre-emption Fight

The state AG cases have absorbed most of the commercial attention in the prediction markets litigation, but they do not provide the entire picture of the legal uncertainties. Tribal nations under the Indian Gaming Regulatory Act (IGRA) have brought forward a parallel set of federal actions. 

The ongoing court cases in this particular category raise a distinct federal question under the Indian Gaming Regulatory Act (IGRA): whether activity occurring on Indian lands constitutes unauthorised Class III gaming in violation of a Tribal-State compact and tribal gaming law.

On May 11, 2026, Judge William Conley of the Western District of Wisconsin issued a ruling in Ho-Chunk Nation v. Kalshi Inc. et al, that gave neither side a clean result. The tribe’s “false advertisment” claims under the Lanham Act and RICO claims were dismissed and Robinhood was removed from the case entirely. The court also denied the tribe a preliminary injunction on grounds that it had not placed before the court any measurable evidence of lost casino revenue, reduced footfall, or diverted customer spending. 

On the other hand, Judge Conley found the IGRA claim sufficiently grounded to advance to discovery. He rejected the argument that the statute only reaches disputes between compacting parties, holding instead that tribes carry standing to sue third-party operators conducting unauthorised Class III gaming on their lands. He also rejected the infrastructure argument, that because Kalshi's servers sit in Ohio and its headquarters in New York, its operations fall outside tribal jurisdiction. 

This is a well coordinated Tribal litigation against prediction markets. Four months before the ruling, on January 6, 2026, seven tribal organisations and 16 federally recognised Indian Tribes filed a motion for leave to submit an amicus brief in support of Ho-Chunk's injunction request. 

Their intervention before any outcome was known is not incidental; it reflects a coordinated strategic approach, treating the prediction markets question as a shared threat to rather than a series of local disputes to be handled individually.

Within days of the Wisconsin ruling, four New Mexico tribes filed a separate federal action against Kalshi, citing the same IGRA framework. A third case, brought by California tribes, is already on a divergent track, that court held UIGEA, not IGRA, governs internet gambling, effectively sidelining tribal compact authority. The case has, however, been appealed, with the oral argument scheduled for July 10, 2026. 

The commercial implication of the overlook tribal layer sits outside the frame most operators are currently using. CEA pre-emption has been treated as the binary question: it holds and the market opens, or it fails and states reassert control. 

The tribal litigation introduces a third axis that neither outcome resolves. IGRA is a federal statute with its own jurisdictional logic, its own enforcement mechanism, and its own body of compact-specific language that varies state by state and tribe by tribe. A pre-emption ruling that defeats a state attorney general leaves that framework entirely intact. Multi-state product strategies built around CFTC compliance without parallel IGRA analysis are not mapping the whole perimeter. Kalshi's partial result in Wisconsin, where it kept operating but failed to extinguish the legal theory that most directly threatens its tribal-land user base, illustrates precisely where that gap sits.

What to Watch, and Where to Move, Before the Courts Decide

The Ninth Circuit has issued a series of stay denials against Kalshi while the Third circuit has issued a preliminary injunction affirmance, blocking New Jersey from enforcing its gambling laws against Kalshi. A confirmation that the   uncertainty around prediction markets is not narrowingbut becoming structurally embedded through the ongoing jurisdictional processes. Ohio’s pending case in the 6th circuit will likely be the most consequential as it focuses on one of the most fundamental questions around this argument; do sports-event contracts fall under federally regulated products protected by the Commodity Exchange Act?

The question for operators, suppliers, and investors is no longer whether the issue will be tested in court, but how businesses position themselves during the extended period before potential Supreme Court review or legislative intervention.

A Supreme Court process typically introduces another 12 to 18 months of uncertainty, leaving market participants operating within an environment where federal and state regulatory frameworks continue to compete. Companies that have not stress-tested their models against a prolonged ambiguity scenario should treat this phase as an active risk-management period, not a waiting period.

At the same time, the market structure is continuing to develop regardless of the legal timeline. Capital, distribution partnerships, and institutional relationships are accumulating within the federal framework, while the CFTC’s proposed rulemaking on event contracts introduces a separate regulatory pathway that could shape what can trade on designated contract markets (DCMs). 

With comments due July 27 and a final rule not expected before Q1 2027, market participants are likely to remain in an extended period where both legal and regulatory uncertainty continue to influence the sector. Public interest exclusions and other limitations remain live variables independent of the court outcomes.

That said, the central takeaway remains unchanged: legal clarity will eventually arrive, but competitive positioning is happening before it does. Operators and suppliers waiting for the regulatory question to be fully resolved before acting are not preserving optionality; they are allowing others to define the market ahead of them.