South Carolina Lawsuit Intensifies Legal Pressure on Prediction Market Operators

The prediction markets industry faces another significant legal challenge as South Carolina attorney Jame M. Hughes of Motley Rice filed a complaint against DraftKings Predictions and Polymarket, alleging the companies have violated state gambling laws by offering games of chance without proper authorization.

The complaint centers on a core argument that has become increasingly common in regulatory circles: that prediction markets, regardless of their marketing language, are functionally equivalent to illegal gambling. Hughes contended in his filing that the companies collect winnings from wagers placed by South Carolina residents on sporting event outcomes, violating the state's gambling statutes. The attorney explicitly rejected the industry's framing, stating that 'the rhetorical set dressing of prediction markets and event contracts doesn't change reality.'

Beyond the narrow legal violation, Hughes' complaint also invokes public health concerns, arguing that these platforms contribute to the problem gambling epidemic and create financial hardship for both compulsive and casual users. This argument reflects a broader trend in regulatory and legal challenges, where authorities frame prediction markets not simply as regulatory compliance issues but as threats to consumer welfare.

The South Carolina action arrives amid an intensifying campaign against the prediction markets sector across multiple states. New York's Attorney General and governor's office announced a separate lawsuit against Kalshi, another major prediction market operator, alleging illegal gambling activity. Notably, New York is seeking $36 billion in damages, claiming restitution for illegal proceeds and compensation to affected customers. That figure underscores how aggressively state authorities are now pursuing these cases and the scale of claimed harm they associate with the sector.

This wave of enforcement activity extends beyond South Carolina and New York. Washington, Michigan, and other jurisdictions have also targeted prediction market operators through regulatory and legal channels. The consistency of these challenges suggests a coordinated skepticism about whether the Commodity Futures Trading Commission's (CFTC) regulatory framework adequately protects consumers or effectively distinguishes event contracts from traditional gambling products.

The prediction markets sector has maintained that its products operate within federal commodity law and that they serve legitimate price-discovery and hedging functions distinct from gambling. However, state attorneys general and private litigators increasingly reject this distinction, arguing that the user experience, marketing, and financial structures of prediction markets resemble sports betting regardless of regulatory classification.

CasinoAdvisor's tracking of the regulatory environment shows that the prediction markets sector now faces legal exposure across at least a dozen states, with enforcement actions accelerating in 2026. The diversity of plaintiffs (state officials, private attorneys, and industry competitors like traditional casinos) suggests that opposition to prediction markets spans regulatory, consumer protection, and commercial interests. For operators in this space, the mounting legal costs and uncertainty around state-level enforcement may force strategic recalibration, particularly regarding user acquisition and marketing practices in states where enforcement actions are active or threatened.