March Madness Broke Prediction Markets

It was prediction market volume, and it triggered a bipartisan crackdown

By the time most people checked their brackets, the market had already done something more interesting.

A March Madness winner contract cleared more than $100 million in trading volume on prediction platforms, according to lawmakers pushing new legislation.

That is the moment prediction markets stopped feeling like a quirky finance product and started looking like the next regulatory knife fight.

Last week, Senators Adam Schiff and John Curtis introduced the Prediction Markets Are Gambling Act, a bipartisan bill that would stop CFTC-registered platforms from listing event contracts that look like sports bets or casino games.

If you have read my earlier piece arguing that prediction markets often function like gambling in a suit, I am not going to re-litigate that here. This article is about what Congress is trying to do with this bill, why March Madness became the Exhibit A, and what it means for the future of prediction markets in the U.S.

TL;DR

Prediction markets expanded into sports so fast that lawmakers are now trying to draw a hard line. The bill would block CFTC-registered venues from listing sports and casino-style contracts. Underneath that is a deeper fight about federal versus state authority, and whether event contracts are financial derivatives or simply gambling with better branding.

What actually happened this March

For years, prediction markets were mostly an elections and macro nerds product. Then sports showed up, and volume followed.

The sponsors’ argument is blunt: if you can trade “yes/no” on a March Madness winner in a way that looks and feels indistinguishable from a sportsbook, then calling it a derivative is a technicality, not a meaningful difference.

They point to the March Madness contract’s nine-figure volume as evidence that these markets are no longer a niche instrument used for hedging. They are a mass-market consumer product, and one that has grown faster than the rules around it.

That is why this bill is happening now. Not because lawmakers suddenly discovered prediction markets exist, but because sports made the category impossible to ignore.

A quick, plain-English refresher on prediction markets

A prediction market is a place where you trade contracts tied to an outcome. If the outcome happens, the contract pays out. If it doesn’t, it doesn’t.

Supporters say these contracts are financial markets because participants are trading with each other, not “betting against the house.” Critics respond that the user experience and incentives are still basically wagering, especially when the contract is “who wins the game.” That is the core argument Congress is trying to settle for at least one category of contracts: sports and casino-like games.

What the bill actually does

The bill’s central move is simple: it would amend the Commodity Exchange Act to prohibit CFTC-registered entities from listing event contracts that resemble sports bets or casino-style games.

Schiff and Curtis frame it as restoring Congress’s original intent that federal commodities law was not meant to be a backdoor for sports gambling.

This matters because the platforms most visible in the U.S. debate, like Kalshi, operate through CFTC registration structures that they argue give them federal authority to list these contracts nationwide. The bill is aimed directly at that claim.

It is not a blanket ban on prediction markets. It is a line-drawing exercise: sports and casino-style contracts are out.

Why this turned into a federal versus state fight

If this were only about gambling, it would be a state-level issue and look a lot like normal sports betting regulation.

Instead, it is turning into a jurisdiction war.

States have been arguing that sports-related event contracts are gambling and should be regulated like gambling. Nevada’s gaming regulators pushed that view in court, and a Nevada judge recently extended a ban against Kalshi operating in the state, agreeing that the activity falls under state gaming rules.

But in New Jersey, Kalshi just won at the federal appeals court level. The Third Circuit ruled that New Jersey could not restrict Kalshi because the contracts fall under the CFTC’s exclusive authority, treating them as swaps under federal law.

So you now have a messy map: one state’s judge treats the product like gambling, another circuit court treats it like federally regulated derivatives, and the platform keeps operating in the places it can while fighting over the places it can’t.

That kind of split is exactly what legislation tries to resolve. It is also why this bill is not just a moral debate about gambling. It is Congress deciding whether states get to keep control over sports betting-like products, even if those products are packaged as financial contracts.

The CFTC is not sitting on the sidelines anymore

While states were sending cease-and-desist letters and filing actions, the federal government escalated.

In early April, the CFTC filed lawsuits against Arizona, Connecticut, and Illinois, arguing that the states were unlawfully interfering with federally regulated markets. The central claim from the CFTC side is federal preemption: the agency sees these as national derivatives markets, and state-by-state crackdowns as unlawful fragmentation.

This is the backdrop Congress is legislating into. It is not just “should sports contracts exist.” It is “who is allowed to say no.”

The best argument against the bill

Even if you think sports contracts look like gambling, there are still two strong counterarguments.

The first is displacement. If the U.S. bans sports and casino-style contracts on CFTC venues, does the activity simply move offshore to platforms with less oversight. That is essentially what industry voices are saying: banning pushes it outside the U.S. regulatory perimeter.

The second is transparency. One of the more interesting defenses of prediction markets is that they leave a trail. When something suspicious happens, it is visible in a way that backroom betting and informal markets are not. The argument is that these markets can expose who knew what when, rather than bury it.

That does not magically make insider trading fine. It just complicates the “shut it down” impulse. If the activity is going to exist anyway, some people would rather it exist where there is visibility and enforcement, not in offshore shadows.

The thing Congress is really trying to avoid

March Madness is the headline, but the deeper issue is path dependence.

If sports becomes the dominant use case for prediction markets, you end up with a product category that looks and behaves like gambling, but lives under a financial regulator that was not built for consumer gambling oversight.

And once that happens at scale, it is hard to unwind.

That is why the bill is written as a clean ban on sports and casino-style contracts, instead of a softer “let’s regulate this better” approach. The sponsors are basically choosing clarity over nuance.

It is also why this debate will not stop with one bill. Multiple proposals are already circulating that touch insider trading, sensitive event categories, and disclosure rules.

This is the start of a regulatory era for prediction markets, not the end of one.

What to watch next

Three things will determine what happens from here.

First, the courts. The Kalshi cases are moving through different states and circuits, and the outcomes are already inconsistent. If appellate splits deepen, this becomes a Supreme Court kind of question.

Second, the federal posture. The CFTC is now suing states to protect its jurisdiction. That makes the regulatory fight harder to ignore and raises the stakes for Congress.

Third, the bill itself. The Prediction Markets Are Gambling Act is clear in intent, but passage is not guaranteed. If it stalls, prediction markets likely continue growing through litigation, selective state enforcement, and whatever rulemaking the CFTC chooses to pursue.

Either way, March Madness did its job. It made the debate legible to normal people.

Conclusion

Prediction markets sold themselves as information tools. Sports made them a mass-market product. Once that happened, it was inevitable that lawmakers would try to draw a line.

This bill is one proposed line: if it looks like sports betting or a casino game, it does not belong on a federally regulated derivatives exchange.

The next few months will tell us whether Congress agrees, and whether the market accepts that boundary or routes around it.

Thank you for reading.

-APL

Sources: Senate.gov, Sen. John Curtis, Sen. Adam Schiff, Business Insider, Fortune, AP News, Reuters, Reuters, Reuters, Reuters, SFChronicle

March Madness Broke Prediction Markets was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.