Shares of DraftKings (DKNG) and Flutter Entertainment (FLUT), the parent company of FanDuel, rallied sharply in Monday trading following the introduction of bipartisan legislation aimed at curtailing the unregulated sports betting activities of CFTC-overseen prediction markets.

A new legislative push seeks to sever the link between federally regulated prediction exchanges and sports wagering. The proposed bill directly targets the rapid expansion of platforms like Kalshi and Polymarket into sports-based contracts.
If enacted, the measure would reinforce state-level sports betting frameworks and eliminate a growing competitive threat to established gaming operators.

In a coordinated effort to close what they describe as a regulatory loophole, U.S. Senators Adam Schiff (D-Calif.) and John Curtis (R-Utah) are set to introduce legislation that would prohibit entities regulated by the Commodity Futures Trading Commission (CFTC) from offering contracts tied to sporting events.

The move, reported by The Wall Street Journal, represents a direct challenge to the operational models of prominent prediction market exchanges Kalshi and Polymarket, whose recent foray into sports outcome speculation has drawn sharp criticism from state regulators and the traditional gaming industry.

Senator Schiff characterized the current landscape as a “backdoor” that undermines state-level consumer protections, encroaches on tribal sovereignty, and fails to generate public revenue, arguing that congressional intervention is necessary to rein in an area the CFTC has allowed to expand unchecked.

The proposed legislation extends beyond the realm of sports betting, casting a broader net over casino-style gaming activities. Lawmakers have crafted the bill to preemptively block prediction markets from evolving into de facto digital casinos, explicitly prohibiting contracts related to slot machines, video poker, blackjack, roulette, and craps. This forward-looking approach signals a firm legislative intent to maintain clear jurisdictional boundaries, ensuring that platforms operating under the CFTC’s purview do not circumvent the established regulatory frameworks that govern traditional gambling operators like DraftKings and FanDuel.

While prediction markets have gained significant prominence by offering wagers on a wide spectrum of outcomes from political elections to the social media habits of high-profile executives, their expansion into sports betting has ignited a fierce regulatory backlash. Several states have argued that these activities directly violate their specific sports gambling laws, particularly in jurisdictions where such betting remains illegal or is strictly controlled through licensed operators. Despite ongoing legal skirmishes, previous efforts to rein in this sector had stalled, making the emergence of this bipartisan legislative action a pivotal development that could reshape the competitive landscape overnight.

The bill does not seek to dismantle prediction market companies outright. Platforms like Kalshi and Polymarket would remain free to operate in other domains, such as political forecasting and economic event contracts, where they have established substantial user bases.

By stripping these exchanges of the ability to offer sports-related contracts, the legislation would remove a key source of friction between federally regulated platforms and state-sanctioned gaming operations, effectively solidifying the dominance of traditional sportsbook operators in that specific vertical.

The proposed legislation threatens to significantly disrupt the betting routines of users in the nation’s largest markets. Residents of California and Texas, where traditional sportsbooks remain illegal, stand to lose their only legal avenue for wagering on sports.

Beyond access, many users have gravitated toward prediction markets for a distinct financial advantage: they operate outside the federal gambling tax framework, allowing participants to net wins against losses for tax purposes. In contrast, traditional sports betting requires gamblers to report all winnings as gross income while only allowing deductions for losses if they itemize, a structure that often results in a tax liability even for bettors who finish the year in the red.