Regular stock exchange observers will know all about prediction markets. Users buy and sell contracts that pay a fixed sum if a specified event occurs – a sports team wins a match, a candidate is elected.
Author
- Filippo Annunziata
Professor of Financial Markets and Banking Legislation, Department of Legal Studies, Bocconi University
The price at which such a contract trades represents the collective estimate of the probability of the event. It resembles a bet in function and a derivative in form. Whether the law classifies it as the one or the other has consequences that extend well beyond the circle of specialists. Lawmakers and courts in the United States and Europe are currently grappling with this issue.
The wager on public events is not a novelty: betting on papal conclaves to select a new pope was so widespread in 16th-century Rome that Pope Gregory XIV prohibited it in 1591 under pain of excommunication, exclusion from the church. What is new is the scale of the phenomenon and the claim that accompanies it.
Kalshi, the principal regulated operator in the US, approached an annualised trading volume of US$50 billion (£37 billion) in early 2026. The operators’ legal argument is simple: they are not bookmakers but financial exchanges, their products are derivatives regulated at federal level, and state gambling laws therefore cannot reach them.
US courts are openly divided on that argument. In April this year the Third Circuit, an appeals court which covers the states of Pennsylvania, New Jersey and Delaware, accepted that a contract on a sporting result is a federal issue. Since any major sporting event carries economic consequences, and is a federally licensed exchange listing, it falls under the exclusive jurisdiction of the national derivatives regulator.
However, on August 28 the Ninth Circuit, which rules in nine other states, Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington, rejected that view . Financial law, the court observed, governs contracts tied to things that can be measured – interest rates, prices, even the weather or inflation. Who wins a football game is not a measurement – it is a result, the court said.
The court then looked at what the product actually does – wagers on which team wins and by how many points, combined for a larger payout – and found precisely what a sportsbook or bookmaker offers. Invoking Shakespeare, the panel concluded that just as a rose by any other name would smell as sweet, a sports bet relabelled as a “contract” remains a sports bet. The state of Nevada may accordingly enforce its gambling laws against the platform.
With two appeal courts in direct conflict, the US Supreme Court will in all likelihood have to decide who regulates this multi-billion dollar industry, the federal government in Washington or the states.
European perspective
What is striking, from a European perspective, is that the Ninth Circuit – applying an entirely different law – arrived at the position that European Union law currently holds. The outcome of a match does not have a multitude of possibilities; it is a discrete fact that occurs one way or the other.
So, a contract on the future level of interest rates may therefore qualify as a financial arrangement, whereas a contract on the identity of the winning candidate remains, in law, a wager. The fault line, on both sides of the Atlantic, does not run between financial and non-financial events; it runs between a range of possible outcomes and facts.
Several member states in the EU , including Belgium, France, Italy, Poland and Romania, have blocked access to these platforms.
Why should this concern the ordinary saver? The classification embodies a choice between protection and access. The EU has determined that an all-or-nothing contract on a future event is incompatible with the protection of retail investors. That determination protects the saver – it also excludes them from an activity that is lawful – and for some, profitable. Neither solution is self-evidently correct – and the question is now before the European Commission.
The European Securities and Markets Authority and the European Commission are currently looking at how the event contracts should be regulated, and whether they should be classed as gambling.
The question of whether a wager on a conclave is an investment has remained open since 1591. An American federal court has just answered it in the same terms as Brussels initially; the US Supreme Court, and the European legislator, are next.
