What’s next for prediction markets after Kalshi’s loss in Maryland?

So-called prediction market operators may not be quite as bulletproof as previously thought after Kalshi was dealt a significant setback in a Maryland court earlier this week.

U.S. District Judge Adam B. Abelson denied Kalshi’s attempt to safeguard itself from state regulation.

Kalshi is currently claims to be legal in all 50 US states but several states have taken regulatory action against the company. Kalshi similar cases against regulators in New Jersey and Nevada. Last year, to the surprise of many, Kalshi won a landmark case against the CFTC in a federal appeals court in Washington, DC, which protected its rights to offer markets on the US election.

The Maryland decision, which Kalshi has already appealed, marks the first major loss for the company in 2025 and could potentially impact other state cases. It might also get the attention of the Supreme Court.

What are prediction markets?

Prediction markets, such as those offered by Kalshi, are somewhat similar to proposition bets offered by sportsbooks but they have several key differences.

Every market on Kalshi operates like a mini stock exchange with a binary “yes/no” outcome. The market shifts depending on where the market is leaning.

Prediction markets are particularly popular for elections but are also offered for pop culture and sporting events. In sharp contrast to sportsbooks, prediction markets have no house edge. Users are simply trading against other users.

Kalshi and other prediction market exchanges generate revenue by charging small fees on each market, similar to the fees on stock exchanges.

Because prediction markets are more similar to trading exchanges, they fall under the purview of the Commodities Futures Trading Commission (CFTC), rather than state-based gaming regulators. That has made it trickier for state regulators to curb the expansion of Kalshi.

Traditional gambling operators balk at predictive markets

It’s clear that Kalshi has the potential to be a disruptive actor in the sports betting space but as of yet it’s difficult to say if it represents a legitimate challenge to the incumbents like FanDuel (NYSE: FLUT), DraftKings (NASDAQ: DKNG) and BetMGM (NYSE: MGM).

Kalshi currently has an advantage when it comes to regulation (although the Maryland ruling may slow its growth) but its sports betting product is far less sophisticated compared to traditional operators.

Sites like DraftKings and FanDuel offer a far more diverse portfolio of wagers while companies like Kalshi are limited to binary yes/no markets.

In fact, DraftKings and FanDuel have looked into making partnerships with Kalshi.

Not everyone wants to work with Kalshi, however, as several casinos (including MGM) have raised concerns about the site. The Nevada Resorts Association also filed a motion against Kalshi.

Earlier this summer, three California tribes filed a lawsuit against prediction market operators Kalshi and Robinhood, claiming they are offering illegal gambling on tribal lands.

Will traditional operators like FanDuel, BetMGM benefit from Kalshi’s stumble?

Despite the controversy, there has been little correlation between the rise of Kalshi and the performance of popular gambling stocks like DraftKings and FanDuel’s parent, Flutter.

DraftKings is up roughly 25% from the start of the year and Flutter is up 20% in the time span. The news on Kalshi out of Maryland hasn’t materially impacted either stock over the last few days.

Meanwhile MGM (NYSE: MGM) stock is down 5% over the last five days so it’s doubtful the Maryland decision had much of an effect. In fact many Las Vegas-based resorts and casinos are dealing with a summer slump that has nothing to do with predictive markets.

Tribal gaming companies are not publicly traded, so there’s no information that can be gathered from Kalshi’s performance over the last year.

It remains to be seen if the court decision in Maryland will have an impact on any of Kalshi’s rivals in the predictions market space.

Perhaps the most interesting story to follow will be that of fellow predictions giant Polymarket. The company is currently eyeing a return to the US market. The crypto-based site started blocking US customers in 2022 but has remained the world leader in prediction markets.

Earlier this year Polymarket acquired QCEX, a CFTC-licensed derivatives exchange to help expedite its return to the US. The actions in Maryland may slow that process.