Prediction markets vs sportsbooks: legality, fees and risks

What are sports prediction markets, and how do they differ from sportsbooks?

A prediction market is an exchange: you trade a contract with another person, and the exchange charges a fee. A sportsbook is the other side of your bet and earns its margin in the price.

SlateProof tracks four US exchanges, Kalshi, Polymarket US, Novig and ProphetX, alongside six sportsbooks, and treats them equally as places to hedge or arbitrage.

Who regulates them?

The exchanges operate under the federal Commodity Futures Trading Commission (CFTC), and state gaming regulators say sports contracts are gambling that needs a state license. Federal courts have disagreed, and the picture below is as of October 6, 2026.

• April 6, 2026: the Third Circuit sided with Kalshi against New Jersey, holding that sports contracts on a CFTC-licensed exchange fall under federal law (Paul Weiss summary; a preliminary-injunction ruling).
• July 31, 2026: New York sued Kalshi, saying it runs an unlicensed gambling operation and allows bettors aged 18 to 20 (Attorney General's release).
• September 25, 2026: the Sixth Circuit ruled against Kalshi, holding Ohio and Tennessee may apply their gambling laws; reporting also describes a Ninth Circuit ruling against Kalshi in a Nevada case in August 2026 (Covers).
• October 2, 2026: Ohio's Casino Control Commission dated cease-and-desist letters to ten prediction-market firms with an October 16 deadline; Kalshi was not among the recipients (Covers).

These facts moved weekly in 2026, so treat any single date as a snapshot and check the state pages, which show when SlateProof last checked each state.

Are prediction markets legal where I live?

It depends on the state you are in, and in some states the answer is contested rather than yes or no. The table shows what SlateProof's availability file says for each exchange, checked October 5, 2026 with a recheck due by October 16, 2026.

Federally regulated (CFTC) exchange. Sports contracts are off in Nevada, Michigan and Washington by court order or settlement, and not live in Utah. Some tribal lands are blocked. "Listed" means the exchange offers sports contracts there according to our sources, not that your state's law allows it. "Contested" marks states with a pending ruling, lawsuit or cease-and-desist, so access can change quickly. Your location when you place the order is what counts, not where you live. The venue's own app has the final say, and this is not legal advice. See the exchanges page for each venue.

Are prediction markets gambling?

That is the question the courts are fighting over. New York calls sports contracts gambling, the Third Circuit held they fall under federal swaps law, and the Sixth Circuit held the opposite for Ohio and Tennessee.

The practical effect is that the same contract can be offered in one state and ordered stopped in another. It also leaves tax treatment less settled than at a sportsbook: the IRS's gambling rules (Topic 419) are written for gambling winnings, so ask a tax professional how your own exchange profits are treated.

What do prediction markets cost?

A fee per trade that depends on the price, plus the gap between the buy and sell price. The fee is not zero, and the cost is not a simple percentage.

The fee is largest near 50 cents and smaller at the edges, but it is bigger relative to the price on a long shot. Kalshi's modeled rate on 100 contracts:

A 50-cent Kalshi contract needs a 51.75% win chance to break even, against 52.38% at -110. That does not make exchanges cheaper: it compares an exchange price with a sportsbook price, and an exchange has its own spread and depth. Compare both on the same outcome. Resting orders pay maker fees or earn rebates, and Polymarket US lists a maker rebate coefficient of 0.0125. Fees checked October 6, 2026: Polymarket US and Novig are read from their own documentation, Kalshi's rate is from third-party summaries (its fee schedule is the authority and its help page says so), and ProphetX's 2% of net winnings is from third-party summaries.

How do the prices compare with sportsbook odds?

A contract price is a probability in dollars, so convert it to odds before you compare. A price of 80 cents is decimal 1.25 or -400; after Kalshi's fee the effective price is lower.

Two cautions. A feed can show a midpoint or the last trade rather than a price you can buy: the buyable price is the ask, and the gap between ask and bid is a cost. SlateProof drops quotes whose two sides add up to 100% because they are midpoints. And depth matters: you can only buy what is resting at that price, so SlateProof requires at least $50 resting for an exchange leg of an arbitrage. The odds converter turns any contract price into odds.

What happens if a player does not play or a game is postponed?

Exchanges settle these cases differently from sportsbooks and from each other. A sportsbook voids a player prop when the player does not play and refunds your stake; an exchange often settles at a last fair price instead, and you may lose or gain on the contract.

• Player does not play: Polymarket US says a baseball player prop settles at the last fair market price if the player does not participate. SlateProof's vetting treats Kalshi the same way, from its published rules as read on October 6, 2026. ProphetX's rule is unverified.
• Postponement: if a game is rescheduled before the contract expires, the result of the rescheduled game governs at Polymarket US; otherwise contracts settle at last fair market prices.
• Ties: a sportsbook pushes an NFL tie; Polymarket US settles a "winner, no ties" contract at 50 cents.
• Scope: a period, overtime or 90-minute rule can differ from the sportsbook's. Read the contract's rules.

These differences are why a prop "arbitrage" with every leg at an exchange is not locked: both legs can lose if the player sits.

Can I use prediction markets to hedge or arbitrage?

Yes, with caveats, and it is where SlateProof uses them. An exchange often gives a better price to hedge a sportsbook bonus bet than a second sportsbook does: in an offline test, letting exchanges take the hedge raised the best daily bonus-bet conversion from about 52% to about 78%.

Exchange-only arbitrages were rarer and shorter-lived: only about 27% were still there five minutes later in an offline test. See the arbitrage guide for the math with exchange fees, the bonus bets guide for hedges, and the hedge calculator for your numbers. SlateProof never places a trade for you.

What are the risks?

Legal risk comes first. A venue can be ordered to stop offering sports contracts in your state, as the Ohio deadline of October 16, 2026 shows, and you should know how you would close or sell a position if that happened.

• Access: exchanges check your location, and your account can be restricted.
• Depth and spread: you may not fill a large order at the price you saw.
• Settlement: rules differ for players who do not play, postponements, ties and overtime.
• Fees: the cost is larger relative to price on long shots.
• Tax: how exchange profits are treated is less settled than for sportsbook winnings; ask a tax professional. Only 90% of wagering losses are deductible from 2026, and only when you itemize (26 U.S.C. 165(d)).

What age is required?

Kalshi, Polymarket US and ProphetX list 18 as the minimum age and Novig lists 21, according to the availability file checked October 5, 2026. Sportsbooks require 21, with 18 in a few jurisdictions.

Age limits are one thing states contest: New York's lawsuit says Kalshi lets 18- to 20-year-olds bet (Attorney General's release). Confirm the rule in the venue's own app.

Keep going

Compare the venues on the exchanges page, check your state, and read how fees change an arbitrage. The hedge calculator and odds converter work in contract prices. The methodology page explains how exchange prices are vetted.