TD Cowen: Prediction market bills to stall, 2028 is the real threat

• TD Cowen analysts predict that several bills targeting prediction markets are unlikely to become law during the current Congress.
• The investment bank identifies the 2028 presidential election as the primary long-term threat to the sector due to bipartisan concerns over state gambling laws.
• Legislative proposals introduced this month seek to ban contracts on sporting events, government actions, war, and assassination.

Surge in Legislative Proposals

Washington has seen a sudden increase in legislative activity aimed at restricting prediction markets. On March 18, a group of Democratic lawmakers led by Senator Chris Murphy introduced a bill to prohibit wagering on sensitive topics like terrorism, war, and government actions. This follows a March 11 proposal by Senators Richard Blumenthal and Andy Kim aimed at broader regulation, including bans on insider trading and stricter advertising standards.

Most recently, a bipartisan bill from Senators John Curtis and Adam Schiff was introduced to stop CFTC-regulated exchanges, such as Kalshi and Polymarket, from offering contracts on sporting events. The legislation also targets "casino-style games" on these platforms to prevent them from circumventing traditional gambling regulations.

Future Political and Legal Risks

Despite the flurry of bills, Jaret Seiberg, managing director at TD Cowen, views these moves primarily as "messaging bills" with no clear path to passage this year. Seiberg noted that even if the legislation progressed, President Donald Trump would likely use his veto power to protect the industry, and Congress lacks the two-thirds majority required to override such a veto.

However, the outlook for 2028 is more precarious. Federal lawmakers are increasingly worried that event contracts could override individual state gaming laws. Many Democrats remain concerned about a nationwide rollout of these markets, while some Republicans view the issue through the lens of states' rights regarding sports betting regulation.

Ongoing State Disputes

While federal action may be stalled, prediction markets are already facing significant pressure at the state level. Legal battles are currently unfolding in several jurisdictions, including:

• Nevada, Utah, and Arizona
• Iowa, Ohio, and Maryland
• New York and New Jersey

These disputes center on whether prediction market contracts fall under existing state gambling statutes. TD Cowen suggests that the industry's strategy of establishing itself deeply over the next three years may not be enough to shield it from the political fallout following the next major election cycle.