Traders assign a 90% implied probability that sports prediction markets will avoid gambling tax classification due to their CFTC-regulated status as contract markets under the Commodity Exchange Act, which positions them as exchanges rather than traditional sportsbooks. Recent circuit court splits on state preemption claims, including New Jersey’s September 2026 Supreme Court petition, highlight ongoing legal uncertainty but reinforce federal oversight advantages over state gambling rules. High sports-contract volume on platforms like Kalshi and Polymarket has drawn scrutiny, yet the absence of IRS guidance treating event contracts strictly as wagers under IRC §165(d) supports the current consensus. Ongoing debates over capital gains or derivative treatment versus ordinary income further tilt sentiment against a definitive gambling label, especially amid broader regulatory developments favoring exchange frameworks.