Kalshi and Polymarket Excluded from FTC Sports Gambling Probe

The Federal Trade Commission's early-stage inquiry into deceptive practices in the online sports gambling industry will not target Kalshi or Polymarket, according to reports. The FTC is instead directing its attention at traditional sportsbooks. For compliance officers and accounting teams working with prediction-market exposures, the exclusion matters, but it should not be read as regulatory relief: both platforms continue to face separate federal and state-level scrutiny that has significant implications for how positions are classified, recorded, and reported in any credible crypto accounting software or digital asset accounting software workflow.

What the FTC Probe Actually Covers

The FTC investigation targets the US online sports gambling industry, estimated at roughly $167 billion in market activity, and is being conducted by a combination of political and career agency staffers. Sources familiar with the matter describe it as being in its early stages.

The FTC's Stated Focus Areas

The inquiry is expected to examine misleading advertising practices by established sportsbook operators. It will also look at social harm metrics linked to the industry, including hospitalization rates, personal bankruptcies, and suicides connected to problem gambling. These are the kinds of systemic concerns that historically prompt either formal enforcement actions or guidance that reshapes industry conduct standards.

Kalshi and Polymarket are explicitly not a focus of this particular investigation. The distinction the FTC appears to be drawing is between companies that present themselves as gambling operators and platforms that argue they function as open financial markets matching buyers and sellers of event contracts.

Why the Exclusion Does Not Equal Clearance

Being outside the FTC's current scope is a narrow exemption. Both platforms are already subjects of a House Oversight Committee insider-trading probe led by Representative James Comer, and New York state has filed suit against both, alleging they operate illegal gambling businesses and contribute to problem gambling among people under the age of 21. The New York litigation explicitly cited research from the National Institutes of Health and the American Psychological Association linking pathological gambling to mental health disorders, suicidal behavior, and substance abuse.

The Regulatory Classification Battle at the Core

The fundamental compliance and accounting question is not whether these platforms are currently under FTC scrutiny. It is whether prediction-market contracts will ultimately be classified as federally regulated commodity instruments under the Commodity Futures Trading Commission, as state-regulated gambling products, or as something else entirely. That classification determines the entire compliance architecture that firms and their auditors need to apply.

The CFTC Pathway That Kalshi and Polymarket Want

Both platforms have consistently argued they should be regulated at the federal level by the CFTC rather than by individual state gaming regulators. Kalshi's CEO has publicly maintained that prediction markets are not gambling because they function as open financial markets that match buyers and sellers on event outcomes, a framing that positions event contracts closer to futures or options than to a wager.

The CFTC angle is not merely strategic positioning. The agency has been actively working through questions about how event contracts should be classified, including whether they constitute swaps. Our earlier coverage of the CFTC's move to separate prediction markets from gambling sets out why that definitional boundary matters for firms that need to apply the correct accounting treatment and AML controls to these instruments.

Political Dimensions That Compliance Teams Cannot Ignore

Donald Trump Jr. holds advisory roles at both Kalshi and Polymarket. He holds reported Kalshi shares valued at $300,000, and his investment firm, 1789 Capital, has invested $500 million in Polymarket. Political proximity to the current administration adds a layer of unpredictability to how federal regulatory posture may evolve. Compliance teams should track this carefully without assuming that political connections provide durable regulatory cover.

Accounting and Reporting Implications for B2B Firms

For accounting firms, CFOs, and auditors handling clients with prediction-market positions, the unsettled classification creates real practical problems. The instrument type determines everything from balance sheet presentation to revenue recognition and tax treatment.

Instrument Classification Drives the Accounting Treatment

If prediction-market contracts are ultimately characterised as commodity derivatives under CFTC jurisdiction, they would need to be accounted for under derivatives guidance, with fair value measurement and mark-to-market treatment applying in most cases. If they are treated as gambling receipts or gaming liabilities, the accounting model shifts entirely, and the entity holding them may face different disclosure requirements. A position that straddles that line right now presents an auditor with a disclosure uncertainty that must be surfaced and documented.

Any crypto bookkeeping software or digital asset accounting software used to record these positions should be configured to flag the classification assumption being applied and to capture the full transaction trail, because regulatory reclassification after the fact could require material restatement.

AML and KYC Obligations Under Each Classification Path

The AML treatment also bifurcates along the classification line. CFTC-regulated derivatives firms are subject to Bank Secrecy Act obligations as futures commission merchants or introducing brokers, meaning formal AML programs, customer due diligence, and suspicious activity reporting are mandatory. State-licensed gambling operators face a different but equally demanding set of AML obligations under FinCEN's rules for money services businesses and casinos. If classification remains ambiguous, firms advising or auditing prediction-market platforms need to apply the more conservative interpretation and document that decision.

Our analysis of Kalshi's insider-trading probe and what it means for compliance teams covers the specific AML and market-integrity angles in more detail.

The Insider-Trading Probe and Its Accounting Ripple Effects

The House Oversight investigation into potential insider trading on prediction markets adds another layer. If the probe results in enforcement actions or findings that certain market participants had access to material non-public information, any firm that recorded gains from those positions may need to reassess how those gains are presented. Proceeds from trades later found to involve market manipulation or insider information carry forfeiture and disgorgement risk, which has direct balance sheet implications.

The New York State Litigation and Its Broader Reach

New York's lawsuit against both Kalshi and Polymarket is substantive, not procedural. The state is arguing that the platforms operate as illegal gambling enterprises and that their products actively contribute to problem gambling among users under 21. If the state prevails, platforms operating without state gaming licenses in New York would face injunctive relief, potential disgorgement of revenues, and civil penalties.

What a State Win Would Mean for Platform Operations

A New York judgment classifying these contracts as gambling would create immediate pressure on other states to follow suit, fragmenting the regulatory landscape further. For firms that have clients trading on these platforms, a state-by-state patchwork of gambling classification would require them to assess the legal standing of each position by the user's jurisdiction of residence, a compliance burden that scales badly without structured digital asset accounting software capable of capturing that granularity.

Revenue Recognition and Tax Reporting in a Contested Space

For corporate clients that have taken positions on Kalshi or Polymarket as part of hedging or treasury strategies, the unsettled classification creates a tax reporting question. Gains from commodity contracts are taxed differently from gambling winnings, and an instrument that is reclassified after year-end can create amended return obligations. Accounting teams should be documenting the classification basis applied at the time of each transaction, not waiting for regulatory clarity that may not arrive before the next filing deadline.

What Firms Should Do Right Now

The FTC's decision to exclude prediction markets from its current sports gambling inquiry buys Kalshi and Polymarket some breathing room on one front. It does not resolve the CFTC classification question, the insider-trading investigation, or the New York state litigation. Each of those threads carries independent compliance and accounting consequences.

Practical Steps for Compliance and Accounting Teams

Firms advising clients with prediction-market exposure, or auditing platforms that operate in this space, should take the following steps now, rather than waiting for a definitive regulatory outcome that could take years to materialise.

First, document the classification basis applied to each prediction-market contract in the relevant accounting period. If you are treating these as derivatives, record that judgment and the regulatory rationale for it. If the classification changes, you need that audit trail.

Second, review AML program coverage. If a client platform sits in regulatory ambiguity between CFTC derivatives oversight and state gambling regulation, apply the BSA obligations that would attach under the more demanding interpretation and document the risk-based rationale for doing so.

Third, watch the CFTC's ongoing definitional work on event contracts and swaps. Any formal rulemaking or no-action letter that shifts the classification will have immediate accounting and tax consequences for every firm with open positions or platform-level exposure.

Fourth, ensure that whatever crypto accounting software or crypto bookkeeping software your team uses can capture the full transaction record, including the platform, contract type, settlement currency, and jurisdictional flags, so that reclassification does not require reconstructing records from scratch.

Source: Protos