Kalshi users as young as 18 now account for billions of dollars in trading activity on sports, activity that critics describe as exploiting a loophole in gambling laws. The platform's rapid growth has turned a long-running dispute over how event contracts should be classified into one of the most consequential regulatory fights in the betting industry.

A recent CNN analysis found that so far this year, users between the ages of 18 and 21 traded an estimated $5.4 billion on Kalshi, the largest prediction market in the U.S. Of that amount, $3.9 billion involved sports-related events.

In most states, sports gambling is off limits to anyone under 21. Kalshi, however, permits anyone 18 or older to participate because it is regulated as a financial market under the jurisdiction of the Commodity Futures Trading Commission. That stands in contrast to sports gambling operators, which are regulated at the state level. New York State is in fact suing to shut down Kalshi, alleging it operates an unlicensed gambling platform.

The stakes of the fight extend beyond Kalshi itself. Licensed sportsbooks, which pay state taxes and licensing fees and must enforce 21-and-over age limits, argue that CFTC-regulated prediction markets offer the same product under a cheaper and looser framework, potentially diverting revenue from state budgets that have come to depend on gambling taxes.

Kalshi did not immediately respond to a request for comment. A spokesperson told CNN that users between the ages of 18 and 21 account for just 3.14% of its overall trading volume.

How the platform works

On Kalshi, users can buy an event contract with a yes-or-no outcome tied to a real-world event. The exchange matches the user with another user taking the opposite position, and only the person who picked the correct outcome is paid. For sports, contracts can cover anything from whether a given team will win a game to whether a team will reach the championship. Kalshi also lists predictions on non-sports events, such as midterm election results or whether 2026 will be the hottest year ever.

Kalshi has previously denied that its prediction markets constitute gambling, arguing that users taking a position with an event contract are always matched against another user rather than the platform itself, as would be the case with a sportsbook.

Still, the contracts resemble bets. Users can also build "combos" that function like a "parlay" bet, wagering on the outcome of multiple events and getting paid only if every part of the bet comes true.

Critics raise addiction concerns

Les Bernal, national director of Stop Predatory Gambling, told Fortune it is worrying that young people can access this kind of platform at such an impressionable age.
"They try to create this experience, it's like a video game type experience, in pushing this on young people," Bernal said of prediction markets like Kalshi. "Meanwhile, we know from the science that this is an extremely addictive product that causes incredible harm."

A peer-reviewed paper published in Science in April warned that the design of commercial prediction markets could create risks of behavioral addiction.
"Continuous novelty and infinite event streams eliminate stopping points, possibly weakening prefrontal inhibitory control. This architecture maximizes trading volume rather than forecasting accuracy, potentially driving neuroadaptation toward compulsive use in vulnerable individuals as rewards fade…" the research journal said.

Kalshi's defense

Kalshi, for its part, has argued it should not be regulated like sports betting or online casinos because it merely connects users on opposite sides of a financial transaction.
"Kalshi does not set odds, does not act as a counterparty, and does not profit from customer losses. It operates a neutral, two-sided marketplace where standardized, fully collateralized contracts are traded at prices determined by supply and demand," the company wrote in testimony earlier this year opposing a Connecticut bill that would have raised the minimum age for using prediction markets to 21. The bill did not pass.

Regulatory pressure builds

So far, Kalshi and other prediction markets have avoided some state rules that apply to sports gambling operations, but that may be changing. A coalition of 44 state attorneys general argued in a letter last month that the CFTC's proposed prediction-market rules exceed its authority and intrude on states' traditional power to regulate sports gambling.

And on Friday, a ruling by the 9th U.S. Circuit Court of Appeals allowed Nevada's government to apply state law against Kalshi's sports-related event contracts, effectively blocking Kalshi from offering them in Nevada unless it complies with state gaming law. The outcome of these overlapping legal fights will help determine whether sports event contracts continue to be governed as federally regulated financial products or fall under state gambling regimes.

This story was originally featured on Fortune.com.