In the ever-expanding universe of sports business, a new category of platform is rapidly gaining market share and raising complex questions for regulators. Companies like PrizePicks, Kalshi, and Polymarket have exploded in popularity, attracting millions of users and massive investment by operating in a space that blurs the lines between fantasy sports, financial markets, and traditional sports betting. While they argue they are not sportsbooks, their products often function as such, creating what many see as a de facto unregulated betting market for the masses.
The Regulatory Gray Zone: Skill vs. Chance
The foundation of these platforms' existence lies in a crucial legal distinction: are they games of skill or games of chance?
PrizePicks: As North America's largest daily fantasy sports (DFS) operator, PrizePicks has built its empire on "pick 'em" style contests. Users don't bet on a point spread; instead, they choose whether an athlete will achieve "more" or "less" than a projected stat line (e.g., LeBron James to score more or less than 25.5 points). By framing these as skill-based fantasy contests, PrizePicks operates legally in many states where traditional sports betting is banned, including massive markets like California and Texas. However, regulators are pushing back. States like New York and Florida have challenged this model, arguing that "pick 'em" games against the house are functionally identical to player prop parlays offered by sportsbooks. This has led to legal battles, cease-and-desist orders, and a nearly $15 million settlement with New York for operating without a license. In response, PrizePicks has pivoted in some markets to "peer-to-peer" contests, but its core business model continues to test the boundaries of gambling law.
Kalshi & Polymarket: These platforms take a different approach, branding themselves as "prediction markets" or "event contract exchanges." Kalshi is regulated by the Commodity Futures Trading Commission (CFTC) as a Designated Contract Market, a designation typically for financial exchanges. Users buy and sell "contracts" on the outcomes of future events, from economic data to, increasingly, sports. Polymarket, which has operated largely outside the U.S. after a 2022 CFTC order, functions similarly on the blockchain. They argue that betting on whether a team will win a championship is not a wager but an investment in an event contract. This classification allows them to sidestep the stringent state-by-state licensing, consumer protection, and responsible gaming regulations that govern traditional sportsbooks like DraftKings and FanDuel.
Explosive Growth and High-Stakes Partnerships
The ambiguity has not slowed their growth; it has fueled it. By offering sports wagering products in untapped markets, these companies have achieved staggering valuations.
PrizePicks recently saw European lottery giant Allwyn agree to acquire a majority stake in a deal that implies an initial enterprise value of $2.5 billion. The company has also secured high-profile marketing partnerships with the Atlanta Braves, State Farm Arena, and The Stephen A. Smith Show, embedding its brand deep within mainstream sports culture.
Similarly, prediction markets have attracted enormous venture capital. Polymarket recently finalized a $200 million investment led by Peter Thiel’s Founders Fund at a $1 billion valuation, while Kalshi raised $185 million from firms like Sequoia, valuing it at $2 billion.
This influx of capital and partnerships legitimizes these platforms in the public eye, even as their legal foundations remain contested.
The Unregulated Dangers
By operating outside the traditional sportsbook regulatory framework, these platforms avoid several key consumer protections:
Responsible Gaming Requirements: Licensed sportsbooks are mandated to provide resources for problem gambling, including self-exclusion lists, deposit limits, and clear warning labels. While PrizePicks has partnered with Kindbridge Behavioral Health, the robust, state-enforced responsible gaming infrastructure is largely absent.
Age Verification: While sportsbooks in most states require users to be 21, PrizePicks is accessible to users as young as 18 or 19 in many jurisdictions, exposing a younger, more vulnerable demographic to gambling-like activities.
Consumer Protections & Fair Odds: Regulated sportsbooks are monitored for fairness. Critics point out that the odds on platforms like PrizePicks often contain a significantly higher "vig" or "juice" (the house's take) compared to traditional sportsbooks, leading to poorer long-term value for the user.
Tax Revenue: States legalize sports betting in part to generate tax revenue. These "skill-based" games often bypass those specific gambling taxes, depriving states of millions in potential income.
The Inevitable Collision
The success of PrizePicks, Kalshi, and Polymarket has not gone unnoticed. Regulators are increasingly scrutinizing their models, and legal challenges are mounting. The distinction between predicting if a player will exceed a stat line and betting an "over" on a player prop is, for many, a distinction without a difference.
These companies have proven there is a colossal appetite for sports wagering products across the country. However, by leveraging legal loopholes to meet that demand, they have set themselves on a collision course with state and federal regulators. The outcome of these impending battles will not only determine the future of these billion-dollar companies but will also fundamentally shape the definition of legal sports gambling in the United States for years to come.