Online gambling and prediction market platforms face an increasingly volatile regulatory and political environment. State authorities are trying to crack down with lawsuits, while federal regulators are adopting an aggressive deregulatory stance by asserting exclusive jurisdiction. Most companies in this space are likely tracking, or even litigating, these issues already. But a new front is on the horizon: Congress is poised to enter the fray, with lawmakers signaling investigations into these services from several angles. Companies in this industry should brace for heightened oversight in 2027 and begin preparing now for robust congressional inquiries.
Regulatory, Litigation, and Political Backdrop
Multiple states have already moved against prediction markets, arguing they are illegal gambling operations that flout local laws. This includes the New Jersey and Washington Attorney Generals who have opened up lawsuits for violations of their state gambling and consumer protection laws. A federal court of appeals recently held that New Jersey’s gaming regulators cannot prevent individuals in the state from using prediction markets to place financial bets on sporting events, holding the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction. The CFTC also recently brought its own action against three states arguing its authority preempts state regulatory and enforcement efforts. The result is a patchwork of litigation and regulatory conflict. Over the coming months, courts across several jurisdictions – and potentially the U.S. Supreme Court – will decide whether federal commodity law truly shields these markets from state gambling oversight.
But neither the states, the CFTC, nor the courts are likely to be the last word. No matter who “wins,” Congress is likely to consider whether to change federal laws, either to allow greater state-level regulation or to enhance or change federal regulation. Those considerations also implicate major policy disputes that have significant political salience in Washington.
The debates over online betting and prediction markets are not purely about the application of existing rules. They tap into highly charged social issues that have captured bipartisan attention, including potential threats to younger consumers. Strong constituencies in Congress support innovation and limited federal regulation over prediction markets and online wagering, but influential voices from both sides of the aisle are calling for more aggressive action.
Critics also express discomfort with the idea of allowing bets on major world events such as wars, elections or pandemics. Trading on markets tied to events like geopolitical conflicts has raised alarm about insider knowledge and profiteering. Whether meritorious or not, lawmakers from both parties have voiced fears that prediction markets could enable insider trading by government officials or others with advanced knowledge of events. Bills have already been introduced to ban federal officials and members of Congress from wagering on policy-related outcomes. And influential figures have gone so far as to liken prediction markets to the tobacco industry, arguing that they warrant strict regulation or even prohibition to protect the public.
Finally, from a raw political perspective, the perception that the industry is supported by the current administration means that Democrats may see an opportunity to use the issue as a front in their election campaigns in 2026 and 2028. House Democrats’ investigative agenda is anticipated to dovetail with broader themes of their platform – e.g. reining in tech practices, protecting youth, and revisiting deregulatory actions. An inquiry into prediction markets hits all these notes and could be used to argue for stricter federal gambling safeguards or limits on CFTC authority.
Congressional Investigations in 2027
We expect that a Democratic-led House and/or Senate would likely focus on consumer protection issues if they succeed in obtaining a majority in either or both chambers during this year’s mid-term elections. Key committees, such as the Oversight Committee, have teams working on consumer protection and related issues. Other committees, such as the House Agriculture Committee, have broad capacity to investigate companies in their jurisdiction. And in any event, it is widely understood that, given the opportunity, Democrats would investigate the Administration’s policies indirectly through its investigations of private companies.
Congressional investigators are already coordinating with state attorneys general. This is a relatively new but powerful playbook to enhance both state AG and congressional impact. State AGs who are locked in legal battles with prediction platforms and worried about federal preemption have an incentive to share evidence and complaints with supportive House committees. In turn, a congressional investigation can shine a national spotlight on issues that state regulators want addressed, potentially buttressing state litigation or spurring new legislation at both federal and state levels. These parallel tracks increase the pressure on companies – an embarrassing document or admission unearthed by a state lawsuit could be seized upon in a House hearing, and vice versa. Unlike a court case, however, Congress’s forum is largely public and political. That means even allegations or information that wouldn't hold up in court might be aired in hearings, shaping public opinion and policy momentum.
Getting Ready
If precedent is any guide, assuming at least a partial success by Democrats in the midterms, the process will begin with formal letters to major companies in the sector, possibly as soon as the summer or fall of 2026, and no later than November or December. These letters from incoming committee chairs serve to put companies on notice of an impending investigation and will be used to argue that companies should be prepared to comply quickly when power changes hands formally in 2027.
Once the 2027 session begins, we can expect committees to move fast. Given the high salience of the issues – consumer harm, youth exposure, and potentially the reversal of Trump-era regulatory decisions – House Democrats would likely be motivated to show swift action. We anticipate aggressive use of compulsory process: if voluntary cooperation lags, committees will not hesitate to issue subpoenas for records and testimony early in the year.
For companies unfamiliar with congressional investigations, Congress’s scope and power to compel information can be challenging. Demands can cover large volumes of documents, informal and compelled private testimony, and, ultimately, high-profile hearings featuring CEOs or senior executives.
In our view, companies in the online gambling and prediction market industry should treat the prospect of a congressional inquiry as a near certainty and take proactive steps well ahead of any official notice. Key preparatory measures include:
- Have a Plan for 2026 and 2027 Letters: Anticipating “notice” letters in 2026 now means that companies can start workshopping how they want to respond, both privately and in the public.
- Anticipate Compulsory Demands: Given the likelihood of subpoenas, have a plan for rapid document collection and review. This might include readying outside counsel and identifying any particularly sensitive materials that could surface. Understand that Congress’s investigative power is broad and fewer protections apply than in court; even privileged or confidential information may be demanded, and while negotiations are possible, they often play out in a highly-charged atmosphere. Be prepared for minimal confidentiality – assume that anything turned over to Congress might eventually become public.
- Use Investigations as an Opportunity: Finally, approach the coming scrutiny not just as a risk to be managed, but as an opportunity to shape the policy dialogue. Congressional investigations can serve as a stage to make the case for clear, consistent regulation of this emerging industry. For instance, if the current patchwork of state laws is untenable, a company might actually benefit from federal legislation that clarifies the rules – whether that means a regulatory framework under the CFTC or appropriate consumer protections that preempt extreme state-by-state measures. By formulating a constructive reform proposal, companies can go into hearings with more than just defensive talking points; they can articulate how smart regulation could address lawmakers’ concerns without stifling innovation. Identifying allies and advocates in think tanks, academia, or advocacy who support reasonable approaches will help in conveying that message. An investigation’s outcome is not preordained to be disastrous; with savvy engagement, companies may steer the conversation toward solutions that ultimately stabilize the business environment.
The potential for heightened scrutiny brings significant risks: legal exposure, reputational damage, and the threat of onerous new rules. But it also brings a platform to influence how these novel services should be overseen. Affected companies should move swiftly to fortify themselves for inquiries, while proactively engaging in the policy debate. By preparing now – strengthening compliance, coordinating internally, and thoughtfully engaging policymakers – firms can navigate the coming storm and perhaps help craft solutions that address public concerns without extinguishing innovation. In the high-stakes intersection of gambling, technology, and politics, readiness is the surest bet.
