Partnerships and pivots in sports gaming. By Katherine Baker, Joshua Kirschner & Samantha Ahearn
So you want to be a prediction market. Over the past year, the sports gaming world has watched as a new player has entered the market, offering a product that looks a whole lot like sports betting without a sports betting license.
Prediction markets are platforms that allow participants to trade on the likelihood of future events, including sports outcomes. Participants can answer binary questions like, “Will the Los Angeles Lakers win tonight?” and earn money if they are correct.
Prediction markets have surged to $44 billion in total 2025 volume, with sports a major factor in that growth, according to a report from Keyrock & Dune. (Amir Hajian, et al., Prediction Markets: The Next Frontier in Financial Markets, available at https://keyrock.com/prediction-markets-the-next-frontier-of-financial-markets/.)
Image: Katherine Baker is a partner at Nelson Mullins Riley & Scarborough LLP. Based in Boston, Katherine chairs the firm’s Gaming Industry Group. A primary focus of her practice is assisting casino gaming, sports betting, and fantasy sports operators, vendors, and entrepreneurs to navigate the state, federal commercial and tribal gaming landscapes, including leveraging FinTech solutions.
This is despite cease-and-desists from state gaming regulators, and a quagmire of litigation involving such regulators along with tribal gaming operators and plaintiffs’ law firms. (See Katherine Baker, et al., Sports Betting Operator, Disrupting the Disruptors: How a coalition of tribes, state regulators and collections firms are turning the tables on prediction markets, (Sept. 11, 2025), available at https://issuu.com/peterwhite3/docs/sports_betting_operator_issue_018_volume_007.)
Wary first impressions from traditional sports gaming operators have quickly turned to admiration, imitation and partnership. Increasingly, sports-themed event contracts have become a popular pivot for sports books, daily fantasy sports and others looking to recoup market share. If you can’t beat ‘em, join ‘em. But at what cost?
Prediction Markets’ Legal Framework, Challenges, and Partnerships
State gaming regulators, attorneys general, sports leagues, tribal gaming operators, and licensed sports books, among others, initially expressed concern and opposition to prediction markets’ offering of sports-themed event contracts, some submitting comments to a would-be Commodity Futures Trading Commission (CFTC) roundtable in the spring. (See Ryan Butler, Covers, FanDuel Voices Prediction Market Concerns, (Mar. 6, 2025), https://www.covers.com/industry/fanduel-voices-prediction-market-concerns-mar-6-2025; see also CFTC, Comments on the Prediction Market Roundtable, available at https://www.cftc.gov/PressRoom/Events/CommentsPredictionMarketsRoundtable.)
The primary issue is the distinction between sports-event contracts and sports betting, a form of gambling.
Prediction markets operate by offering event contracts that allow traders to bet on the likelihood of future events, which can include sports outcomes, league results or player performance. Unlike traditional sports books that set odds and assume risk, prediction markets (in theory at least) rely on peer-to-peer trading and market price, most akin to stock markets.
They can also resemble an exchange or betting pool, potentially blurring lines with conventional sports wagering. Even if positioned as informational or analytical tools, real-money prediction contracts can trigger sports betting, and gambling law and regulatory frameworks.
State sports betting statutes generally require that any entity accepting real-money wagers on sporting events be licensed. If a prediction market is classified as a form of sports wagering or even as a closely related gambling product, it may be deemed to require a sports book license or similar authorization in that state.
The difference between permitted products (like regulated sports books or daily fantasy sports) and prohibited wagering can rest on subtle structural and legal nuances, which vary under each state’s law. These issues are currently being litigated across the United States. (See Katherine Baker, et al., Sports Betting Operator, Disrupting the Disruptors: How a coalition of tribes, state regulators and collections firms are turning the tables on prediction markets, (Sept. 11, 2025), available at https://issuu.com/peterwhite3/docs/sports_betting_operator_issue_018_volume_007.)
Image: Joshua Kirschner is an associate at Nelson Mullins Riley & Scarborough LLP. Based in Atlanta, Joshua focuses his practice on the gaming and gambling sectors. He represents businesses and individuals in a wide variety of regulatory and white-collar litigation matters.
Signals from the CFTC and the Trump administration that they would not impede self-certification, combined with stalled legal challenges in federal court made it clear that prediction markets had staying power. (See Dan Bernstein, Sportico, CFTC Cancels Sports Futures Meeting with Gambling Groups, (Apr. 24, 2025), https://www.sportico.com/business/sports-betting/2025/cftc-cancels-roundtable-sports-prediction-markets-1234849784/; Ben Horney, Front Office Sports, Sports Betting Giants, Leagues Watch Closely as Kalshi Keeps Winning, (May 13, 2025), https://frontofficesports.com/sports-betting-giants-leagues-watch-closely-as-kalshi-keeps-winning/.)
Initial concerns held by many sports gaming operators rapidly shifted to active monitoring and eventually concrete plans to roll out white-label prediction markets of their own, in partnership with existing prediction markets. (See Ben Horney, Front Office Sports, Sports Betting Giants, Leagues Watch Closely as Kalshi Keeps Winning, (May 13, 2025), https://frontofficesports.com/sports-betting-giants-leagues-watch-closely-as-kalshi-keeps-winning/.)
Sports-event contracts would allow sports betting operators to expand into states where sports betting as a form of gambling is prohibited. For DFS operators, prediction markets were an attractive pivot to fill the California-sized market hole signaled by the July 2025 Attorney General Opinion that certain DFS products are illegal sports betting under California law. (See Tom Nightingale, SBC Americas, California AG Rob Bonta vows to enforce DFS opinion—but how?, (Jul. 23, 2025), https://sbcamericas.com/2025/07/23/california-bonta-enforce-dfs-opinion/.)
To date, multiple leading sports betting and daily fantasy sports operators have launched sports-prediction market apps in partnership with existing prediction markets. (Matt Rybaltowski, iGaming Business, Will DraftKings’ entry into prediction market space trigger arms race for industry supremacy?, (Dec. 19, 2025), https://igamingbusiness.com/sports-betting/draftkings-prediction-market-launch-arms-race/.)
This has led to a clear cleft amongst the largest sports gaming operators, as most recently demonstrated by the recent defenestration of certain major online sports books from their shared perch atop the American Gaming Association. (Tom Nightingale, SBC Americas, Fanatics no longer an American Gaming Association member, (Dec. 11, 2025), https://sbcamericas.com/2025/12/11/fanatics-american-gaming-association/.)
Licensing Risks for Sports Betting and Daily Fantasy Sports Operators
While prediction markets offer sports-event contracts, pursuant to a federal financial-licensing-and-regulatory scheme, their universal decision not to pursue state-level gaming licensure as sports betting operators, and to operate in states that prohibit sports betting raise significant legal and regulatory issues. Those issues are compounded when existing sports-gaming operators with active state gaming licenses choose to partner with them.
Image: Samantha Ahearn is an associate at Nelson Mullins Riley & Scarborough LLP. Based in Boston, Samantha focuses her practice on complex commercial litigation and business disputes, insurance disputes, labor and employment matters, internal investigations, and gaming
Sports betting and daily fantasy sports operators expended substantial resources securing and maintaining gaming licenses and approvals in many states. Those licenses are held at the pleasure of state gaming regulators primarily on the basis of suitability, which assumes compliance with law and reputational soundness. With a majority of states now taking the position that sports event contracts are both illegal sports betting and not “event contracts” as defined by the Commodity Exchange Act, regulated sports gaming operators are risking loss of licensure by launching prediction market apps.
In response to these partnerships, several state gaming commissions issued letters warning sports gaming licensees not to get involved in the prediction market business or risk adverse action to licensure. (Pat Evans, iGaming Business, Michigan joins states warning sportsbooks against prediction markets, (Oct. 6, 2025), https://igamingbusiness.com/legal-compliance/michigan-prediction-markets-warning-sportsbooks/.) Notably, in December 2025, the Arizona Department of Gaming (ADG) became the first to actually revoke a license. Robert Linnehan, Sports Betting Dime, Arizona Department of Gaming To Revoke Underdog’s Fantasy Sports License Due to Predictions Market Involvement, (Dec. 12, 2025), www.sportsbettingdime.com/news/betting/underdog-fantasy-arizona-license-reovked/.
Arizona issued a Notice of Violation & Intent to Revoke the fantasy sports license of one of the leading DFS operators, due to its partnership with a prediction-market provider, and its involvement in offering sports-event contracts. Specifically, the ADG stated in the notice that it determined that – by contracting with, benefiting from, supporting, and providing financial support to the prediction market – the DFS operator was aiding and abetting the prediction market’s illegal gambling conduct in Arizona.
Importantly, in this case, the DFS operator never offered prediction market products within Arizona. (Id.) The ADG’s decision to take adverse action in response to the licensee’s mere involvement with a prediction market in other states raises significant concerns. Although state gaming commissions generally have broad discretion in licensing decisions, the ADG’s decision is an attempt to police affairs in foreign jurisdictions.
The Arizona precedent reinforces the risk that, given broad discretionary over assessing suitability, state regulators may interpret partnerships and indirect involvement as sufficient grounds for regulatory action, even absent direct in-state offerings.
License-driven enforcement action is specific to existing gaming licensees, but only reflects the broader trend of state regulators issuing cease-and-desist orders to and engaging in legal action in the courts against prediction market operators, which now include such gaming licensees. Sports gaming operators who have chosen to launch prediction platforms are thus now at risk of the same claims that state gaming regulators, tribal operators and citizens are lobbing at prediction markets. Operators will need to weigh and consider these and other risks if they are considering offering prediction-market products.
Conclusion
Prediction markets present both opportunity and risk for the sports betting, and for fantasy sports industry. While they offer innovation and potential new revenue streams, regulatory uncertainty is significant, subject to regulator and judicial discretion. The recent action in Arizona underscores that state regulators may interpret even external partnerships with prediction markets as a threat to established gambling frameworks, with serious consequences, including license revocation.
Loss of license in one state, and more broadly, involvement in activity that some regulators and courts believe is illegal gambling, could have a domino effect in other states and cause lasting suitability impacts. Recognizing this heightened risk, a group of prediction markets, along with at least one sports-gaming operator partner, have formed a coalition to mount a joint defense. (See Mike Breen, Prediction News, New Coalition for Prediction Markets Formed by Top Exchanges, (Dec., 11, 2025), https://predictionnews.com/news/new-coalition-for-prediction-markets-formed-by-top-exchanges/.)
For states and operators alike, navigating this space will require rigorous legal assessment, careful product design, and close regulatory engagement to balance innovation with compliance and risk mitigation.
