According to American Gaming Association’s latest Gaming Industry Outlook 2026 report, 81 per cent of gaming executives consider prediction markets a “very significant” threat to the regulated gaming industry.
Casinos fear “unregulated and untaxed competition”
Gaming executives surveyed by the AGA described prediction markets as a form of “unregulated and untaxed competition”, warning that the expansion of event contract trading could undermine both industry credibility and traditional gambling frameworks.
The warning comes as legal disputes surrounding companies such as Kalshi continue to escalate across multiple US states. Prediction markets allow users to buy and sell contracts tied to the outcome of real-world events, including elections, economic indicators and sporting fixtures. Operators argue these products should fall under federal commodities regulation rather than state gambling laws because they function as financial instruments rather than bets. That distinction has become one of the most fiercely contested legal questions in the US gaming sector.
The concerns intensified after a US Court of Appeals ruling in April suggested sports-related event contracts offered by Kalshi could qualify as federally regulated swaps, potentially shielding the platform from state-level gambling restrictions. At the same time, Nevada recently secured a temporary restraining order preventing Kalshi from offering sports-related contracts in the state, after regulators argued the products amounted to unlicensed sports betting.
Meanwhile, the Commodity Futures Trading Commission has doubled down on its position that prediction markets fall under federal oversight. In April, the agency sued the state of New York in an effort to block enforcement actions against federally registered event contract exchanges. Industry analysts have warned that the issue could eventually reach the Supreme Court as states, tribal gaming groups and federal regulators continue to clash over jurisdiction.
Gambling industry faces broader pressures
The rise of prediction markets also comes at a sensitive moment for the wider gambling sector. Although the AGA report showed overall executive sentiment remained positive, with strong expectations around revenue growth and capital investment, operators continue to face mounting pressure from inflation, labour costs and regulatory uncertainty.
AGA: Gaming executives ‘remain optimistic’ amid prediction market, geopolitical threats https://t.co/Yn7P5fK2dm
— Global Gaming Insider (@GGInsiderHQ) May 8, 2026
Executives additionally warned that competition from “new forms of gaming” is becoming a major operational concern, with 42 per cent now identifying it as a limiting factor for business growth, up sharply from the previous survey period.
Polymarket controversy fuels scrutiny
Public scrutiny surrounding prediction markets has also intensified in recent weeks following allegations that insider information linked to military operations was used to place wagers on geopolitical events via Polymarket. Israeli authorities have reportedly charged two men over bets tied to air strikes on Iran. Meanwhile, there is another ongoing case about a US Army Special Forces soldier being charged over earning more than $400,000 by using classified information to place bets on the removal of Venezuelan leader Nicolas Maduro via Polymarket.
Critics argue that the controversies demonstrate the growing ethical and regulatory risks posed by lightly regulated event-trading platforms. Supporters of prediction markets, however, continue to defend the sector as a legitimate forecasting and financial tool rather than a gambling product.
The debate has become particularly significant for the sports betting industry, where prediction market platforms are increasingly attracting users in states where conventional sportsbooks remain restricted. Reports suggest sports-related contracts now account for a substantial portion of trading volume on major prediction market platforms.
Gaming industry remains financially optimistic
Despite mounting concerns around prediction markets, overall sentiment within the gaming industry remained broadly positive. The Gaming Conditions Index showed real economic activity in the casino sector increased by 1.5 per cent year-on-year in Q1 2026, marking the third consecutive quarter of expansion. Gaming executive sentiment also climbed to a 21.4 per cent net positive rating, the strongest reading since Q3 2022, driven by optimism around customer activity, revenue growth and capital investment.
Executives indicated particularly strong expectations around revenue growth and balance sheet health, both recording 56 per cent net positive outlooks. Customer activity expectations also remained strong at 32 per cent net positive. More than 60 per cent of respondents said they expect increased capital investment over the next six to 12 months, while supplier confidence surrounding gaming equipment sales reached record highs.
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