By Alexander Osipovich and Roshan Fernandez

Prediction-market startup Kalshi made its name by giving political junkies a way to bet on last year's presidential election. Now, it's making a play for football fans.

The firm has emerged as a competitor to much larger sports-betting platforms such as DraftKings and FanDuel. Bettors can trade contracts on the outcomes of football, basketball and other games through Kalshi's app as well as Robinhood Markets, the brokerage that popularized bets on meme stocks.

Emboldened by a federal judge's 2024 ruling legalizing election betting, Kalshi introduced sports betting earlier this year. The move came despite decades of regulatory efforts to separate the worlds of gambling and financial trading, and it drew loud protests from casino operators and Native American tribes.

Kalshi's rise has been one of the most significant industry developments since the Supreme Court in 2018 invalidated a federal law prohibiting states from authorizing sports betting.

"This is the No. 1 thing that we talk about now," said Jordan Bender, a gaming-industry analyst at Citizens Capital Markets and Advisory. "It's this new, unknown opportunity. It feels like 50% of the conversations these days are around prediction markets."

Kalshi operates in a regulatory gray area. As an exchange licensed by the Commodity Futures Trading Commission, Kalshi makes its sports contracts available nationwide -- even in states such as California and Texas, where online sports betting is illegal. Kalshi says its federal status means it doesn't need to abide by local regulations such as restrictions limiting gambling to those 21 and older.

In June, the attorneys general of 34 states signed a brief arguing that Congress never intended to create an "events-contract loophole" allowing Kalshi to offer sports wagers, and complaining that Kalshi was ignoring state safeguards against gambling addiction. The brief was filed in support of New Jersey gaming regulators in one of several legal fights playing out across the country where Kalshi has butted heads with state officials. Kalshi says the supremacy of federal law allows it to offer sport contracts nationwide, as long as it complies with CFTC rules.

"We are very confident that we are on the right side of the law," said Sara Slane, head of corporate development at Kalshi.

So far, Kalshi has faced little opposition from the administration of President Trump, whose oldest son, Donald Trump Jr., became an adviser to Kalshi in January. This month's start of the National Football League season powered record trading volumes at Kalshi, defying skeptics who expected the platform to struggle outside of election years. More than three-quarters of Kalshi's volume is now sports-driven.

Kalshi is still a minnow in the sports-betting industry. Valued at $2 billion in a recent funding round, it is a fraction of the value of DraftKings or of FanDuel parent Flutter Entertainment. Unlike those companies, Kalshi doesn't have licensing deals with leagues, so it avoids trademarked terms such as "Super Bowl" on its website and app.

Still, its success has inspired potential imitators. In August, FanDuel said it was joining with exchange operator CME Group to develop a trading platform that resembles Kalshi. While the announcement didn't mention sports, it was widely seen as an initial step toward creating a nationwide CFTC-regulated sports-betting market.

Prediction markets allow users to buy and sell contracts tied to yes-or-no questions about future events. The contracts typically pay $1 if the user is correct and $0 if the user is wrong, and their prices fluctuate as users reassess. For instance, contracts on Zohran Mamdani winning the New York mayoral election were recently trading at 88 cents on Kalshi, meaning that users give him an 88% chance of victory.

When applied to sports, the Kalshi model allows users to buy and sell contracts while the game is in action, and potentially lock in profits, more seamlessly than on sportsbooks that also offer in-game betting, users say.

For instance, when Minnesota Vikings quarterback J.J. McCarthy completed a deep pass just before halftime in a Sept. 14 game in which the Vikings trailed the Atlanta Falcons, Foster McCoy immediately bought contracts on a Vikings win.

McCoy, a 27-year-old former casino-industry employee, didn't actually expect the Vikings to win. Instead, he watched the price of Vikings-victory contracts rise as other users piled in. Within 45 seconds, he sold for a $500 profit, much like a hedge fund capitalizing on a brief mispricing in a stock. The Vikings ended up losing.

Online sportsbooks also offer "live betting" on games in process, in a shift from the old days when bettors could only place wagers in advance. But sportsbooks can suspend wagering or halt bettors' ability to cash out of winning bets -- which often happens precisely at game-changing moments, as bookmakers readjust the odds. Kalshi says it doesn't do that.

Kalshi argues that it is fairer than sportsbooks because its users bet against one another, rather than against the house. Since it makes money by collecting fees when users buy and sell contracts, Kalshi says it is friendlier to high-volume whales such as McCoy than traditional betting companies, which have a history of weeding out overly successful bettors.

CJ Roberts, a 19-year-old in Ohio, recently made about $200 betting against his hometown Cincinnati Reds. Back in May, he picked the New York Knicks to make the NBA Finals. He went to sleep when the Knicks led by double digits late during Game 1 of the Eastern Conference Finals, but woke up the next morning to see most of his unrealized gains had disappeared with the Knicks' lead.

Roberts isn't old enough to use a traditional sportsbook in Ohio. He thinks Kalshi should have the same age limit, even though that would restrain him. "Kids come on there and they don't understand, and you can lose money very fast," Roberts said.

Write to Alexander Osipovich at alexo@wsj.com and Roshan Fernandez at roshan.fernandez@wsj.com

(END) Dow Jones Newswires

September 28, 2025 10:00 ET (14:00 GMT)

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