Prediction Markets Outmaneuver State Betting Bans with Federal Leverage

Crypto.com and fantasy and sports gaming operator Underdog have launched sports prediction markets in 16 U.S. states, primarily targeting regions where legal sports betting has not yet been adopted. This partnership, announced on September 2, 2025, aims to leverage the growing interest in sports event contracts, which blend elements of financial trading and sports betting. These contracts allow users to buy and sell outcomes of sporting events, with odds determined by market dynamics rather than a bookmaker [1].

The venture marks Underdog as the first major sports gaming platform to enter the prediction market space, which is viewed as a rapidly expanding sector. These markets operate under federal oversight by the Commodity Futures Trading Commission (CFTC) and are offered nationwide, unlike traditional sports betting, which is regulated at the state level. The 16 states where these contracts are now available include states where legal sports betting remains prohibited or is subject to tribal gaming monopolies [3]. For instance, California and Texas—two of the most populous states—do not offer legal sports betting, while Florida’s Seminole Tribe dominates the gambling landscape through its Hard Rock casinos. These gaps in the market provide a strategic opportunity for platforms like Underdog and Crypto.com to offer a federally compliant alternative [1].

The sports event contracts are facilitated by Crypto.com Derivatives North America (CDNA), a CFTC-registered exchange, and delivered through Underdog’s app using its proprietary technology. CDNA has already established itself as a leader in the prediction market space, having been the first to offer sports event contracts. With the partnership, CDNA’s offerings are now accessible to Underdog’s user base, expanding the reach of prediction markets and integrating them into a single, streamlined platform that also supports fantasy sports and traditional sports betting [2]. The contracts cover major sports leagues such as the NFL, NBA, MLB, and college football, with real-time price updates allowing users to trade dynamically based on changing market sentiment [2].

Market analysts suggest that the prediction market could generate significant revenue in the near term. Citizens Gaming analyst Jordan Bender estimates that the sector could generate $555 million in 2025, compared to the $16 billion generated by the legal online sports betting market in 2024. The potential for growth has attracted attention from traditional sports betting operators and major financial institutions. For example, FanDuel recently announced a partnership with CME Group to enter the prediction market space, while DraftKings CEO Jason Robins has expressed interest in similar opportunities [1].

However, the expansion of these markets has not been without controversy. Critics argue that sports prediction markets resemble sports betting and may encroach on states' rights to regulate gambling. Additionally, some state regulators have issued cease-and-desist orders to operators like Kalshi and Robinhood, accusing them of offering unauthorized online gambling. Legal challenges remain ongoing, with platforms like Kalshi defending their operations under CFTC jurisdiction and challenging state-level claims in federal courts [4].

The launch of these prediction markets also raises questions about responsible gambling practices. Unlike traditional online sportsbooks, which are subject to state-level responsible gambling protocols such as self-exclusion programs, prediction markets currently operate without such mandates. While some platforms, including Kalshi, offer voluntary tools like trading breaks and funding caps, regulators and consumer advocates have called for greater oversight to ensure user protection [5].

Source:

[1] title1 (https://www.cnbc.com/2025/09/02/cryptocom-and-underdog-partner-to-offer-sports-prediction-markets.html)

[2] title2 (https://www.morningstar.com/news/business-wire/20250902697076/underdog-and-cryptocom-derivatives-north-america-announce-first-prediction-market-exchange-offered-on-major-sports-gaming-operator-app)

[3] title3 (https://frontofficesports.com/underdog-bets-on-prediction-markets-with-crypto-com-deal/)

[4] title4 (https://crypto.news/prediction-market-hype-returns-despite-skepticism/)

[5] title5 (https://www.bettingusa.com/sports/prediction-markets/)