Invest2 publishers2 min readPublished
Federal appeals over Kalshi will decide whether state gambling law reaches up to $100 billion in sports bets
Economist Victor Matheson puts 2025 US sports betting on prediction markets at $50 billion to $100 billion, handle that state regulators cannot see. Kalshi's pending federal appeals will shape whether that money stays outside state gambling law.
The Investor · Invest desk
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What happened
- Americans placed roughly $166 billion in bets on sporting events in 2025, a total that leaves out prediction markets and tribal casinos that do not publish handle.
- Fortune reported that 35% of bettors say they use traditional sportsbooks less because prediction markets such as Kalshi and Polymarket changed how they bet.
- In March, Arizona became the first state to file criminal charges against Kalshi, accusing it of running an illegal gambling business.
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Why it matters
- cost A small group of heavy users pays for most of it: 5% of bettors absorb about 95% of losses, or under $15.8 billion of the sportsbook loss pool.
- exposure If Maryland's reading wins on appeal, the at least six states already pursuing Kalshi with orders or suits have Arizona's criminal filing as a template.
- constraint Until the appeals rule, states have no way to tax or supervise prediction-market sports handle that their regulators cannot see.
- contradiction Fortune sets $166 billion of handle against about $70 billion of entertainment revenue; counted as losses, betting is under a quarter of that total and smaller than live music's $18.51 billion.
Handle is gross throughput. More than 90% of what is wagered goes back to bettors as winnings [9], so the roughly $166 billion bet with sportsbooks in 2025 [1] left bettors with losses of under $16.6 billion [1]. Fortune's average works out to roughly $1,000 bet and about $100 lost per American adult [10].
The pool moving to prediction markets comes on top of that figure, and its size is one economist's estimate. Victor Matheson, a Holy Cross economist who studies sports gambling, puts it at $50 billion to $100 billion in handle [13]. Against the $166 billion, that would be 23% to 38% of sportsbook and prediction-market handle combined [2]. The sportsbook base is soft as well. Matheson said Florida's tribal casinos, which are not required to disclose handle, account for $5 billion to $10 billion on their own [15]. He told Fortune that the $165 billion or $170 billion figure is low [14]. The 35% figure Fortune reported [2] counts bettors who changed habits, and Fortune did not report how much money they moved.
The legal fight turns on what the contracts are. A federal judge in Maryland wrote that "Kalshi characterizes its sports-related event contracts in various ways, but at bottom, they are sports wagers." [7] The appeals can go three ways. If the appeals courts adopt the reading that prevailed initially in Nevada and New Jersey [6], the contracts stay under federal commodities law and state gambling statutes do not reach them. If they adopt Maryland's, the contracts are sports wagers under state law. If they disagree with each other, the same contract is legal in some states and an illegal bet in others, depending on where the bettor sits.
In my view, the prediction-market share is best treated as handle held on a legal argument that won twice at the first stage and lost once [6]. An operator or investor who books that $50 billion to $100 billion as settled market share has taken the Nevada and New Jersey side of the appeal. Fortune reported that the outcome could reshape who taxes and regulates sports wagering nationwide [8].
The view is wrong if the appeals courts affirm the Nevada and New Jersey rulings. The federal classification would then hold in those jurisdictions, and the prediction-market handle would be as durable as a licensed sportsbook's.
What to watch
- Appellate rulings in the Nevada, New Jersey and Maryland cases on whether federal commodities law overrides state gambling law.
- Whether Arizona's criminal case against Kalshi proceeds, and whether any other state pursuing the company files charges of its own.
- A measured figure for prediction-market sports handle to replace Matheson's $50 billion to $100 billion estimate.