Prediction markets are platforms where users can buy and sell contracts that pay out a fixed amount if a specific event happens, such as a sports team winning or a political candidate being elected. The price of these contracts reflects the public’s collective belief about the likelihood of the event occurring. These contracts function like bets but are legally classified as derivatives, which can affect how they are regulated. The idea of betting on public events is not new. In the 16th century, betting on the outcome of papal elections was so common that Pope Gregory XIV banned it in 1591. What has changed is the scale of such betting and the legal debates that surround it today. In the U.S., Kalshi, a major regulated prediction market operator, reached an annual trading volume of around $50 billion by early 2026. Kalshi and similar companies argue they are not bookmakers but financial exchanges, and their contracts are derivatives, which are regulated at the federal level. This argument means they claim state gambling laws should not apply to them. However, U.S. courts are split on this issue. In April, the Third Circuit, which covers Pennsylvania, New Jersey, and Delaware, ruled that contracts on sports events are a federal matter, since major sporting events have economic impacts and are run by federally licensed exchanges. However, in August, the Ninth Circuit, covering nine other states, took a different view. It argued that the result of a football game is not a measurement but an outcome, similar to what a sportsbook offers. The court referenced Shakespeare, suggesting that labeling a sports bet as a "contract" does not change its nature. As a result, states like Nevada may enforce their own gambling laws against such platforms. With two federal appellate courts in direct disagreement, the U.S. Supreme Court is likely to step in and decide whether the federal government or individual states should regulate this multi-billion-dollar industry. From a European perspective, the Ninth Circuit’s view aligns with the stance of European Union law, which considers the outcome of a match a discrete fact, unlike financial events that have a range of possible results. Several EU countries, including Belgium, France, Italy, Poland, and Romania, have blocked access to these platforms, arguing that such contracts pose risks to retail investors. The European Securities and Markets Authority and the European Commission are currently reviewing how these event-based contracts should be regulated and whether they should be classified as gambling.