Prediction markets are taking a bigger bite out of traditional sportsbooks, and the numbers come first.
A Fullstory survey of more than 1,000 U.S. consumers in September found that 60% of bettors say prediction markets have changed how often they use traditional sportsbooks, while 35% say they are using sportsbooks less because of them. The same survey said trust and reputation, at 60%, and ease of use, at 59%, ranked ahead of potential payouts or odds, at 51%, as the main reasons people choose a platform.
The shift matters because it is moving wagering activity away from state-regulated sportsbooks and toward markets that operate under a different federal framework. Fortune reported that prediction markets are being treated as 'commodity futures, not gambling,' with contracts on sports outcomes regulated by the CFTC rather than state gaming boards. That means they do not need a state sportsbook license and do not pay a state betting tax.
Americans legally wagered $166.94 billion on sports in 2025, generating $3.71 billion in state tax revenue. The American Gaming Association estimates prediction markets have diverted more than $500 million in potential sports-betting tax revenue away from states.
The issue is now turning into a legal fight. Illinois tried to stop the trend with a 15% tax on prediction-market sports contracts, but Kalshi sued, arguing the state has no authority over a federally regulated product. Similar disputes are underway in Nevada, New Jersey and Maryland.
The roots of the fight go back to the 2006 Unlawful Internet Gambling Enforcement Act, which did not ban online betting but barred banks from processing payments for it and carved out an exception for fantasy sports. DraftKings and FanDuel later used that opening to build daily fantasy contests, and regulators largely let it slide for years before states moved in.
Now the same pattern is repeating with prediction markets. Fullstory said 77% of respondents switched gaming platforms entirely over the user experience alone, and a quarter said they use both kinds of platforms, just for different events.
For sportsbooks, that is a margin problem. For states, it is a taxpayer problem. When betting moves into a structure that avoids the old licensing and tax model, the public still gets the risk, but not always the revenue.
Capital rewards clear rules. The market has already voted for platforms that are faster, simpler and less encumbered by state layers of regulation. That may be good for innovation, but it also exposes how much of the current system depends on tax collection rather than competition. Once consumers learn to expect transparency and convenience, the pressure on the old sportsbook model will only grow.
