Iran Wagers Trigger U.S. Scrutiny of Prediction Markets

U.S. regulators are moving closer to formal oversight of prediction markets after a surge of Iran-related betting activity drew scrutiny in Washington.

Prediction markets built their case in Washington on a simple premise: tradable probabilities resemble financial market data more than gambling, and therefore merit a regulatory framework closer to derivatives trading than to sportsbooks. A surge of betting tied to Iranian military events is now testing that argument.

Platforms including Polymarket and Kalshi are simultaneously pursuing major fundraising rounds that could value each company at roughly $20 billion, according to reports. The discussions come as U.S. regulators and lawmakers intensify scrutiny of event-contract markets following large wagers tied to geopolitical developments.

At the centre of the controversy is trading activity linked to military strikes and political leadership risk in Iran.

Large Volumes Tied to Iran Contracts

An analysis by Reuters found that approximately $529 million was wagered on Polymarket contracts connected to the timing of attacks related to the Iranian conflict. Another $150 million was placed on markets concerning the death or removal from power of Iran’s supreme leader, Ali Khamenei.

Reuters reported that several accounts generated significant profits after placing trades shortly before key developments. Six trading accounts collectively generated about $1.2 million in profits from those contracts after opening positions only hours before raids that killed the Iranian leader. The pattern raised immediate questions among policymakers about whether individuals may have traded with early access to sensitive information.

For regulators, the episode highlights a long-standing concern surrounding prediction markets: when contracts reference military operations or leadership changes, incentives to trade quickly can overlap with incentives to leak confidential information.

What had largely been a theoretical risk now has concrete trading data attached to it.

Washington Moves Toward Regulation

Lawmakers have begun responding. Representative Mike Levin and Senator Chris Murphy are drafting legislation aimed at restricting or potentially banning certain categories of prediction-market contracts following the Iran-related trading activity.

At the regulatory level, the U.S. Commodity Futures Trading Commission is also preparing to act. Agency chair Michael Selig confirmed the CFTC has submitted an advance notice of proposed rulemaking (ANPR) to the White House budget office, a step that typically precedes the release of formal regulatory proposals. Selig previously told Reuters: 

“The more we ​try to block these markets, we saw with crypto, it just goes offshore, so my view on this stuff is that we’ve got to set the right rules and regulations for it here in the United States, or otherwise, we’re just going to have black markets offshore.”

A rulemaking process would represent the most significant federal attempt yet to define how prediction markets should operate within the U.S. financial system.

Media Integration Raises the Stakes

The scrutiny arrives as event-contract platforms push deeper into mainstream financial media distribution.

CNBC has signed a multi-year agreement with Kalshi that will integrate event-contract probabilities into its television broadcasts and digital platforms beginning in 2026.

Separately, Dow Jones & Company struck an exclusive data distribution deal with Polymarket, allowing contract prices to appear alongside traditional financial indicators across publications including The Wall Street Journal, Barron’s, and MarketWatch.

Such partnerships have expanded the visibility and perceived legitimacy of prediction markets. They also mean that the integrity of event-contract pricing now carries implications beyond individual trading platforms, particularly once those probabilities appear within widely used financial information services.

Legal Pressure Emerges

Regulatory scrutiny has coincided with litigation involving Kalshi.

On March 5, the company was sued in California in a class-action complaint alleging it failed to pay out $54 million owed to users who bet that Khamenei would leave office before March 1.

The lawsuit claims Kalshi invoked a “death carveout” clause only after the Iranian leader was killed, effectively changing the contract interpretation after the outcome had already been determined.

Kalshi disputes the allegations, stating its rules governing death-related outcomes were clearly specified from the beginning. The company says it reimbursed users’ trading fees and losses so that no participant experienced a net financial loss.

A Defining Moment for Event Contracts

The Iran-related trades have effectively accelerated a policy debate that had been building for years.

Regulators now face a structural decision. One path would formally recognize prediction markets as legitimate event-contract platforms while imposing stricter monitoring requirements and excluding the most sensitive contract categories – including war, assassination, and political leadership removal.

Another option would prohibit those types of markets altogether, narrowing the scope of event contracts in exchange for clearer regulatory boundaries.

As fundraising discussions push valuations toward $20 billion, the regulatory framework governing prediction markets may ultimately determine both the sector’s scale and the events it is allowed to trade.