Analysis: Prediction Markets’ U.S. Nationwide Expansion and Implications for Gambling & Non-Investment Grade Credit

A 2024 U.S. appeals court ruling (

) allowed prediction markets to operate as federally regulated event contract exchanges, with the CFTC dropping its appeal in May 2025 to solidify nationwide access [1]. Unlike state-regulated online sports betting (available in 39 states as of 2025 [2]), prediction markets can now serve all 50 U.S. states—including the 20 states covering half the U.S. population with no or limited online gambling [3]. The U.S. online gambling market is projected to hit $26.8 billion in 2025, with sports betting dominated by FanDuel and DraftKings [4]. This regulatory shift erodes state control, expanding market reach for prediction markets and introducing product differentiation (covering elections, entertainment, and economic indicators beyond sports [5]). Major operators like DraftKings and FanDuel are investing “hundreds of millions” to launch prediction market offerings, leveraging their existing brand recognition and user bases [3]. Smaller regional gambling platforms and non-IG lottery issuers in low-competition states face significant revenue diversion risks [3]. Additionally, Bank of America warned of mounting consumer credit risks as gambling losses drive loan defaults [6].

1. State-federal regulatory tensions are escalating
   : States may push for stricter rules to protect tax revenues from competition with federal prediction markets [3].
2. Convergence of financial and gambling markets
   : The August 2025 partnership between CME Group and FanDuel blends traditional financial markets expertise with gambling distribution, signaling a structural cross-sector shift [1].
3. Disproportionate risk for non-IG lottery issuers
   : Issuers in states with limited gambling options are particularly vulnerable to revenue losses due to their reliance on local market dominance [3].
4. Amplified responsible gambling risks
   : Prediction markets’ diverse event offerings may drive broader user adoption than traditional sports betting, exacerbating both problem gambling and consumer credit risks [5][6][7].

:

• Revenue diversion for non-IG lottery issuers and smaller regional gambling operators [3].
• Elevated consumer credit defaults, potentially straining lending institutions [6].
• Rising problem gambling risks due to increased accessibility and event diversity [7].
• Regulatory uncertainty from possible future CFTC or state rule changes [1].

:

• Growth potential for prediction market operators (e.g., Kalshi) and major sports betting platforms (e.g., DraftKings) investing in the space [1][3].
• Increased consumer choice in previously restricted states (accompanied by heightened risk awareness needs) [3].

This report synthesizes data on the federal regulation of prediction markets and its impacts on the U.S. gambling industry and non-IG credit. The 2025 regulatory solidification enables nationwide prediction market operation, disrupting the state-regulated gambling landscape. Major industry players are expanding into this segment, while smaller operators and non-IG lottery issuers face headwinds. Consumer credit and responsible gambling risks are heightened, alongside growth opportunities in the emerging prediction market sector. No prescriptive investment recommendations are provided.