AGA and IGA Tell Congress to Close the Prediction Market Loophole Before the Clarity Act Becomes Law

The American Gaming Association and the Indian Gaming Association sent a joint letter to Congress on May 16, calling on lawmakers to include explicit language in cryptocurrency market structure legislation that would prohibit prediction market platforms from offering sports betting and casino-style gambling through Commodity Futures Trading Commission-registered exchanges. The letter was signed by AGA President and CEO William C. Miller Jr. and IGA Chairman David Z. Bean, and was directed at lawmakers considering the Digital Asset Market CLARITY Act as it advances through the Senate.

The two trade groups argue that prediction market platforms have used the CFTC’s regulatory authority as a shield against state gambling laws, allowing them to offer what is functionally nationwide sports wagering without the tax obligations, licensing costs, or consumer protection requirements imposed on licensed sportsbooks. The AGA and IGA contend that failing to address this issue in the CLARITY Act would permanently cement a two-tier regulatory system that disadvantages licensed operators and undermines state and tribal sovereignty over gambling regulation.

The Stakes for Legal Gambling Operators

The stakes for the established gambling industry are significant. Kalshi, Polymarket, and other prediction market platforms do not pay state gaming taxes, do not carry the $10 million-plus licensing fees required in markets like Pennsylvania, and are not subject to the same anti-money-laundering and responsible gambling mandates that licensed sportsbooks must meet. The AGA disclosed that it spent $730,000 lobbying on prediction market legislation in the first quarter of 2026, its heaviest single-quarter expenditure on the issue in over a year.

Senator Marsha Blackburn’s Commerce Subcommittee on Consumer Protection, Technology and Data Privacy has scheduled the first formal Senate hearing on prediction markets for May 20. Two competing legislative frameworks are expected to be debated: the Prediction Markets Are Gambling Act, which would ban live-event wagering on prediction platforms entirely, and the Prediction Markets Security and Integrity Act, which would require CFTC registration and impose sportsbook-equivalent consumer protection standards. The AGA has endorsed the lighter-touch registration approach as a fairer baseline, though it continues to push for outright prohibitions on sports and casino contracts in the CLARITY Act itself.

What It Means for Players and Operators

For players currently using DraftKings, FanDuel Predicts, or standalone prediction market platforms like Kalshi to wager on sports, the outcome of the May 20 hearing could determine whether those products remain accessible. If the ban on live-event contracts becomes law, the sports market functionality on prediction platforms would be shut down. If the registration framework passes instead, the platforms would need to comply with age verification, spending limit tools, and other requirements, but sports contracts could continue.

A coalition of 41 state attorneys general has also written to Congress urging regulatory clarity, and the CFTC has sued three states attempting to enforce their own gambling laws against prediction market platforms. The Ninth Circuit is expected to issue a ruling on the CFTC’s jurisdictional claim in the coming weeks, which could force a Supreme Court decision as early as 2027 if the lower court ruling favors the states. The broader regulatory picture for prediction markets is moving toward a resolution, and the May 20 hearing is the most direct signal yet that Congress intends to provide it.