Partnerships and pivots in sports activities gaming. By Katherine Baker, Joshua Kirschner & Samantha Ahearn
So that you wish to be a prediction market. Over the previous 12 months, the sports activities gaming world has watched as a brand new participant has entered the market, providing a product that appears a complete lot like sports activities betting with no sports activities betting license.
Prediction markets are platforms that permit contributors to commerce on the probability of future occasions, together with sports activities outcomes. Members can reply binary questions like, “Will the Los Angeles Lakers win tonight?” and earn cash if they’re right.
Prediction markets have surged to $44 billion in complete 2025 quantity, with sports activities a significant factor in that development, in accordance with a report from Keyrock & Dune. (Amir Hajian, et al., Prediction Markets: The Subsequent Frontier in Monetary Markets, accessible at https://keyrock.com/prediction-markets-the-next-frontier-of-financial-markets/.)
Picture: Katherine Baker is a accomplice at Nelson Mullins Riley & Scarborough LLP. Primarily based in Boston, Katherine chairs the agency’s Gaming Trade Group. A main focus of her follow is aiding on line casino gaming, sports activities betting, and fantasy sports activities operators, distributors, and entrepreneurs to navigate the state, federal industrial and tribal gaming landscapes, together with leveraging FinTech options.
That is regardless of cease-and-desists from state gaming regulators, and a quagmire of litigation involving such regulators together with tribal gaming operators and plaintiffs’ regulation companies. (See Katherine Baker, et al., Sports activities Betting Operator, Disrupting the Disruptors: How a coalition of tribes, state regulators and collections companies are turning the tables on prediction markets, (Sept. 11, 2025), accessible at https://issuu.com/peterwhite3/docs/sports_betting_operator_issue_018_volume_007.)
Cautious first impressions from conventional sports activities gaming operators have shortly turned to admiration, imitation and partnership. More and more, sports-themed occasion contracts have develop into a well-liked pivot for sports activities books, each day fantasy sports activities and others seeking to recoup market share. In the event you can’t beat ‘em, be a part of ‘em. However at what price?
Prediction Markets’ Authorized Framework, Challenges, and Partnerships
State gaming regulators, attorneys common, sports activities leagues, tribal gaming operators, and licensed sports activities books, amongst others, initially expressed concern and opposition to prediction markets’ providing of sports-themed occasion contracts, some submitting feedback to a would-be Commodity Futures Buying and selling Fee (CFTC) roundtable within the spring. (See Ryan Butler, Covers, FanDuel Voices Prediction Market Issues, (Mar. 6, 2025), https://www.covers.com/business/fanduel-voices-prediction-market-concerns-mar-6-2025; see additionally CFTC, Feedback on the Prediction Market Roundtable, accessible at https://www.cftc.gov/PressRoom/Occasions/CommentsPredictionMarketsRoundtable.)
The first subject is the excellence between sports-event contracts and sports activities betting, a type of playing.
Prediction markets function by providing occasion contracts that permit merchants to wager on the probability of future occasions, which may embrace sports activities outcomes, league outcomes or participant efficiency. In contrast to conventional sports activities books that set odds and assume threat, prediction markets (in concept not less than) depend on peer-to-peer buying and selling and market value, most akin to inventory markets.They will additionally resemble an alternate or betting pool, probably blurring traces with typical sports activities wagering. Even when positioned as informational or analytical instruments, real-money prediction contracts can set off sports activities betting, and playing regulation and regulatory frameworks.
State sports activities betting statutes typically require that any entity accepting real-money wagers on sporting occasions be licensed. If a prediction market is classed as a type of sports activities wagering and even as a intently associated playing product, it could be deemed to require a sports activities ebook license or comparable authorization in that state.
The distinction between permitted merchandise (like regulated sports activities books or each day fantasy sports activities) and prohibited wagering can relaxation on delicate structural and authorized nuances, which differ beneath every state’s regulation. These points are at present being litigated throughout the USA. (See Katherine Baker, et al., Sports activities Betting Operator, Disrupting the Disruptors: How a coalition of tribes, state regulators and collections companies are turning the tables on prediction markets, (Sept. 11, 2025), accessible at https://issuu.com/peterwhite3/docs/sports_betting_operator_issue_018_volume_007.)
Picture: Joshua Kirschner is an affiliate at Nelson Mullins Riley & Scarborough LLP. Primarily based in Atlanta, Joshua focuses his follow on the gaming and playing sectors. He represents companies and people in all kinds of regulatory and white-collar litigation issues.
Indicators from the CFTC and the Trump administration that they might not impede self-certification, mixed with stalled authorized challenges in federal court docket made it clear that prediction markets had endurance. (See Dan Bernstein, Sportico, CFTC Cancels Sports activities Futures Assembly with Playing Teams, (Apr. 24, 2025), https://www.sportico.com/enterprise/sports-betting/2025/cftc-cancels-roundtable-sports-prediction-markets-1234849784/; Ben Horney, Entrance Workplace Sports activities, Sports activities Betting Giants, Leagues Watch Intently as Kalshi Retains Profitable, (Might 13, 2025), https://frontofficesports.com/sports-betting-giants-leagues-watch-closely-as-kalshi-keeps-winning/.)
Preliminary considerations held by many sports activities gaming operators quickly shifted to lively monitoring and ultimately concrete plans to roll out white-label prediction markets of their very own, in partnership with present prediction markets. (See Ben Horney, Entrance Workplace Sports activities, Sports activities Betting Giants, Leagues Watch Intently as Kalshi Retains Profitable, (Might 13, 2025), https://frontofficesports.com/sports-betting-giants-leagues-watch-closely-as-kalshi-keeps-winning/.)
Sports activities-event contracts would permit sports activities betting operators to increase into states the place sports activities betting as a type of playing is prohibited. For DFS operators, prediction markets had been a lovely pivot to fill the California-sized market gap signaled by the July 2025 Lawyer Basic Opinion that sure DFS merchandise are unlawful sports activities betting beneath California regulation. (See Tom Nightingale, SBC Americas, California AG Rob Bonta vows to implement DFS opinion—however how?, (Jul. 23, 2025), https://sbcamericas.com/2025/07/23/california-bonta-enforce-dfs-opinion/.)
So far, a number of main sports activities betting and each day fantasy sports activities operators have launched sports-prediction market apps in partnership with present prediction markets. (Matt Rybaltowski, iGaming Enterprise, Will DraftKings’ entry into prediction market area set off arms race for business supremacy?, (Dec. 19, 2025), https://igamingbusiness.com/sports-betting/draftkings-prediction-market-launch-arms-race/.)This has led to a transparent cleft amongst the most important sports activities gaming operators, as most not too long ago demonstrated by the latest defenestration of sure main on-line sports activities books from their shared perch atop the American Gaming Affiliation. (Tom Nightingale, SBC Americas, Fanatics not an American Gaming Affiliation member, (Dec. 11, 2025), https://sbcamericas.com/2025/12/11/fanatics-american-gaming-association/.)
Licensing Dangers for Sports activities Betting and Day by day Fantasy Sports activities Operators
Whereas prediction markets provide sports-event contracts, pursuant to a federal financial-licensing-and-regulatory scheme, their common resolution to not pursue state-level gaming licensure as sports activities betting operators, and to function in states that prohibit sports activities betting elevate vital authorized and regulatory points. These points are compounded when present sports-gaming operators with lively state gaming licenses select to accomplice with them.
Picture: Samantha Ahearn is an affiliate at Nelson Mullins Riley & Scarborough LLP. Primarily based in Boston, Samantha focuses her follow on complicated industrial litigation and enterprise disputes, insurance coverage disputes, labor and employment issues, inner investigations, and gaming
Sports activities betting and each day fantasy sports activities operators expended substantial sources securing and sustaining gaming licenses and approvals in lots of states. These licenses are held on the pleasure of state gaming regulators totally on the idea of suitability, which assumes compliance with regulation and reputational soundness. With a majority of states now taking the place that sports activities occasion contracts are each unlawful sports activities betting and never “occasion contracts” as outlined by the Commodity Alternate Act, regulated sports activities gaming operators are risking lack of licensure by launching prediction market apps.
In response to those partnerships, a number of state gaming commissions issued letters warning sports activities gaming licensees to not become involved within the prediction market enterprise or threat adversarial motion to licensure. (Pat Evans, iGaming Enterprise, Michigan joins states warning sportsbooks in opposition to prediction markets, (Oct. 6, 2025), https://igamingbusiness.com/legal-compliance/michigan-prediction-markets-warning-sportsbooks/.) Notably, in December 2025, the Arizona Division of Gaming (ADG) turned the primary to truly revoke a license. Robert Linnehan, Sports activities Betting Dime, Arizona Division of Gaming To Revoke Underdog’s Fantasy Sports activities License As a consequence of Predictions Market Involvement, (Dec. 12, 2025), www.sportsbettingdime.com/information/betting/underdog-fantasy-arizona-license-reovked/.
Arizona issued a Discover of Violation & Intent to Revoke the fantasy sports activities license of one of many main DFS operators, as a result of its partnership with a prediction-market supplier, and its involvement in providing sports-event contracts. Particularly, the ADG said within the discover that it decided that – by contracting with, benefiting from, supporting, and offering monetary assist to the prediction market – the DFS operator was aiding and abetting the prediction market’s unlawful playing conduct in Arizona.Importantly, on this case, the DFS operator by no means provided prediction market merchandise inside Arizona. (Id.) The ADG’s resolution to take adversarial motion in response to the licensee’s mere involvement with a prediction market in different states raises vital considerations. Though state gaming commissions typically have broad discretion in licensing selections, the ADG’s resolution is an try to police affairs in overseas jurisdictions.
The Arizona precedent reinforces the danger that, given broad discretionary over assessing suitability, state regulators could interpret partnerships and oblique involvement as ample grounds for regulatory motion, even absent direct in-state choices.
License-driven enforcement motion is restricted to present gaming licensees, however solely displays the broader pattern of state regulators issuing cease-and-desist orders to and interesting in authorized motion within the courts in opposition to prediction market operators, which now embrace such gaming licensees. Sports activities gaming operators who’ve chosen to launch prediction platforms are thus now vulnerable to the identical claims that state gaming regulators, tribal operators and residents are lobbing at prediction markets. Operators might want to weigh and contemplate these and different dangers if they’re contemplating providing prediction-market merchandise.
Conclusion
Prediction markets current each alternative and threat for the sports activities betting, and for fantasy sports activities business. Whereas they provide innovation and potential new income streams, regulatory uncertainty is critical, topic to regulator and judicial discretion. The latest motion in Arizona underscores that state regulators could interpret even exterior partnerships with prediction markets as a risk to established playing frameworks, with critical penalties, together with license revocation.
Lack of license in a single state, and extra broadly, involvement in exercise that some regulators and courts imagine is against the law playing, might have a domino impact in different states and trigger lasting suitability impacts. Recognizing this heightened threat, a bunch of prediction markets, together with not less than one sports-gaming operator accomplice, have fashioned a coalition to mount a joint protection. (See Mike Breen, Prediction Information, New Coalition for Prediction Markets Shaped by High Exchanges, (Dec., 11, 2025), https://predictionnews.com/information/new-coalition-for-prediction-markets-formed-by-top-exchanges/.)For states and operators alike, navigating this area would require rigorous authorized evaluation, cautious product design, and shut regulatory engagement to stability innovation with compliance and threat mitigation.
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