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South Dakota’s regulated gambling hubs are taking fresh aim at prediction markets, warning that platforms like Kalshi and Polymarket are sliding into sports-wagering territory without the state-level guardrails that casinos and lotteries must follow.
The latest pushback comes as prediction markets expand their U.S. footprint by offering “yes/no” contracts tied to real-world outcomes, including sports. Kalshi, the best-known operator in the category, argues it is a federally regulated exchange overseen by the Commodity Futures Trading Commission (CFTC) and that federal commodities law pre-empts state sports-betting rules.
Prediction markets continue to remain in grey areas, according to regulators
In Deadwood, local operators say the model looks and feels like sports betting, but it runs outside South Dakota’s licensing system and outside its consumer-protection playbook.
George Milos, executive director of the Deadwood Gaming Association, said prediction markets represent “a complete overreach,” arguing they allow nationwide trading on events that South Dakota voters and lawmakers never approved in a gambling format. He also said the platforms can sidestep protections Deadwood casinos must implement, including age checks, anti-money-laundering controls, responsible gambling resources, self-exclusion participation, and geolocation tools designed to keep play inside legal boundaries.
From the state’s side, South Dakota’s Attorney General’s Office has aligned with a broader, bipartisan coalition of states challenging the idea that prediction markets can offer sports-style products nationwide while bypassing state gaming laws. In other states, regulators and attorneys general have increasingly treated the issue as a sovereignty fight: who gets to decide what is gambling, the states, or a federal derivatives regulator?
The legal fight: “trading” vs betting, and who regulates it
Prediction market operators frame their products as financial instruments. Users trade contracts with each other, and the platform collects fees, rather than “booking” wagers like a sportsbook. That distinction is central to Kalshi’s argument that it belongs under the CFTC umbrella as a federally supervised marketplace.
States counter that the economic substance matters more than the label. If a product functions as a sports bet, especially when it’s priced and promoted in a way consumers understand as wagering, then states argue it should be subject to the same licensing, integrity monitoring, and consumer safeguards required of sportsbooks and casinos. That clash has already produced lawsuits, injunction requests, and escalating rhetoric from regulators who say they are being cut out of their traditional role.
Legal analysts covering the disputes have noted that the pre-emption question is moving toward a high-stakes test of federal-versus-state authority, one that could reshape how U.S. gambling expansion happens in the next cycle.
An alarmed Deadwood: compliance, taxes, and integrity
Milos said South Dakota’s licensed operators operate under strict standards and contribute tax revenue that supports public priorities, while prediction markets can accept activity statewide without feeding the same state system. He framed the issue as a direct challenge to what voters authorized: gaming that is regulated locally, taxed locally, and enforced through South Dakota institutions.
The industry’s argument mirrors what regulators in other jurisdictions have been saying: even if prediction markets are legal under federal commodities rules, the state still bears the social-cost and enforcement burden when consumers lose money, chase their losses, or get drawn into products that resemble gambling but lack the same protections.
Source: Keloland
