Key Points
- 60% of consumers say prediction markets have changed how often they use traditional sportsbooks, with 35% using them less, per Fullstory’s 2026 Gambling & Gaming Survey.
- According to the American Gaming Association, more than $1.3 billion of state gaming taxes have been lost due to prediction markets since 2025.
- In the decision issued on 25 September, the Sixth Circuit unanimously found that Kalshi’s sports contracts are not swaps under federal law, thus deepening the existing circuit split.
For years, sportsbooks assumed being first in the market meant staying there. Prediction markets are now proving that assumption costly.
According to a recent study conducted by Fullstory and published on September 22, 2026, more than 1,000 US customers were interviewed. The results showed that 60% believe that prediction markets have already influenced their use of traditional sportsbooks. Out of those, 35% now use sportsbooks less frequently, whereas 25% use them along with the prediction markets depending on the event type.
The Experience Gap Nobody Budgeted For
Trust and reputation led all platform-selection criteria, cited by 60% of respondents. Ease of use followed at 59%, placing above potential payouts or odds at 51%. That ranking is the part sportsbooks should find most uncomfortable. Sportsbooks have competed on lines and promotions for years, treating those as the factors that mattered most. Fullstory’s data points elsewhere: consumers are moving because the product itself feels harder to use.
Jason Wolf, president of Fullstory, told Fortune the findings should be “a wake-up call for traditional sportsbooks,” citing greater transparency around outcomes, more event types, and a more intuitive experience as the reasons consumers are shifting toward prediction platforms.
The cost of underperforming on experience shows clearly in the data. Some 83% of respondents said they would likely stop using a gaming platform after a poor digital experience. Overly complicated processes were the most cited reason for leaving, named by 38%. Fast performance was the leading factor bringing users back, cited by 51%. Retention strategies built around promotions rather than platform speed are now showing their limits.
A Regulatory Loophole Running at NFL Scale
The echoes of the daily fantasy era are impossible to ignore here. DraftKings and FanDuel once called their product a game of skill, not gambling. They carved out space under the 2006 Unlawful Internet Gambling Enforcement Act. States eventually caught up, writing daily fantasy into gambling law within a few years. Kalshi and Polymarket are running a version of the same play. They call sports event contracts commodity futures regulated by the CFTC, not wagers governed by state gambling boards.
The volume behind that argument is already growing hard to dismiss. Barron’s reportedprediction-market trading exceeded $5.83 billion across the first NFL weekend of 2026. The American Gaming Association estimates prediction markets have siphoned more than $1.3 billion in potential state gaming tax revenue since 2025. NFL handle from regulated sportsbooks grew flat at roughly $29.5 billion year on year. The AGA ties that stagnation partly to prediction markets capturing growth that licensed operators would otherwise have held.
That tax gap sits at the centre of state enforcement actions. Licensed sportsbook operators pay a gaming tax on net gaming revenue in markets like New York. Prediction market platforms, operating as federally regulated exchanges, face a structurally different tax treatment. States argue that the difference comes directly at the expense of public revenue.
States Sue, the CFTC Sues Back
The legal counteroffensive from states is now running on multiple tracks simultaneously.New York Attorney General Letitia James sued Polymarket on 24 September, alleging it operated as an unlicensed gambling platform in the state. That suit followed a similar action against Kalshi filed in July 2026. It seeks to block Polymarket from operating in New York, forfeit all gains, and pay restitution to users. Polymarket filed its own federal lawsuit the same day, seeking to move the case out of state court.
The CFTC took its own legal action in response. It sued Connecticut, Arizona and Illinois in April 2026, arguing federal jurisdiction over event contracts supersedes state gambling law. Arizona had already filed 20 criminal charges against Kalshi, covering alleged election wagering and sports betting violations. Kalshi called those charges “gamesmanship,” maintaining its contracts answer to federal rather than state authority.
However, no such clear ruling has been made by the courts thus far. In its unanimous decision made on 25 September 2026, the Sixth Circuit determined that Kalshi’s sports events contracts do not fit within the definition of swaps under the Commodity Exchange Act, which, consequently, meant that the CEA was not a preemption of the Ohio and Tennessee gambling regulations. The Sixth Circuit decision further exacerbated an existing circuit split, as the Third Circuit had decided in favour of Kalshi against New Jersey, whereas the Ninth Circuit was in favour of Nevada.
The National Council on Problem Gambling issued a warning in September about the risks posed by prediction markets to consumers – just like the risks associated with traditional gambling. According to their commission, Harris Poll, 85% of Americans feel that addictions may form on such platforms. Also, 84% of them supported gambling-style consumer protection for the market.
Expert Analysis: What Sportsbooks Are Actually Getting Wrong?
We think sportsbooks are fundamentally misreading what the Fullstory survey numbers mean. Treating 35% as a churn problem misses what those consumers have already experienced elsewhere. A faster app or a bigger bonus does not undo a comparison that has already been made.
Prediction markets gave users tradable positions, live market-driven pricing, and access in states where licensed sports betting is still blocked. Once consumers experience that degree of flexibility, a more restricted product needs to justify itself on grounds beyond odds. The survey found trust and ease of use outranked potential payouts as the top platform-selection criteria. That points to a structural gap, not one that promotions alone can close.
The Roosevelt Institute’s analysis of Kalshi transaction data estimated retail users lost more than $583 million on the platform. That figure runs from Kalshi’s launch in July 2021 through May 2026, with sports contracts accounting for over $371 million. Separate research cited in that analysis found prediction-market users lose a higher proportion of what they stake. The median sportsbook bettor fares measurably better on that same comparison. That pattern suggests prediction markets are structurally harder for retail participants, yet consumers are choosing them in growing numbers.
The gap between user experience and user outcome is where sportsbooks should be looking. A product that appears less favourable to everyday users is still winning market share. That is not a case for prediction markets; it is a case against what sportsbooks have failed to deliver. Fullstory’s survey has already pointed to exactly where that failure sits.
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