A few years ago, Nebraskans looking to legally bet on March Madness had two choices: Go to the casino or cross state lines.

Now, they can put as much money as they want on college basketball games from their phones using DraftKings, FanDuel or any one of at least a dozen apps.

State law still bars sportsbooks from offering online gambling. But the platforms say that users of their new prediction markets aren’t “betting” — they’re “trading.”

Leaders in Nebraska’s casino industry say upstart prediction markets have undermined the state’s prohibition on internet gambling by exploiting a legal loophole to offer unlimited wagering on sports, politics and everything in between. And they’re increasingly driving addiction for problem gamblers in the state, a local advocate said.

Users of Kalshi and Polymarket, the nation’s two biggest prediction markets, have wagered more than $97 million on Nebraska Cornhuskers men’s basketball games this season, though it’s unclear how many users were based in the state.

The two trading platforms have also hosted action on state political contests, including a combined $1.4 million in wagers on the winner of the Omaha area’s “Blue Dot” in 2024.

In the last four months, sports betting juggernauts FanDuel and DraftKings have launched their own prediction markets that look nearly identical to their online sportsbooks.

The difference between sportsbooks and prediction markets lies in who users are betting against. At a sportsbook, a gambler bets against a bookmaker who sets the odds. In a prediction market, users “trade” against their peers by buying and selling positions in future events at prices determined by supply and demand.

Prediction market platforms say this distinction means they shouldn’t be regulated as gambling operations by individual states but as commodity exchanges by the federal government.

“If we are gambling, then I think you’re basically calling the entire financial market gambling,” Kalshi CEO Tarek Mansour told Axios last year.

Under President Donald Trump, the U.S. Commodity Futures Trading Commission has agreed with the companies, claiming sole jurisdiction to regulate prediction markets, which have seen explosive growth since 2024.

States and Native American tribes have pushed back, arguing in pending lawsuits that prediction markets are nothing more than illegal gambling operations. In January, Nebraska Attorney General Mike Hilgers signaled his support for a lawsuit brought by three California tribes against Kalshi in a legal brief.

They’re “a loophole gone wild” designed to circumvent state rules and taxes, said Lance Morgan, the CEO of Ho-Chunk Inc. and WarHorse Casino.

“It looks like a sports bet. It quacks like a sports bet. It’s a sports bet,” Morgan said. “How is betting on the Huskers the same as trading on the price of soybeans?”

Overs and unders

Lincoln retiree Bob Linhardt first heard about Kalshi on TV. During an interview, former New Jersey Gov. Chris Christie denounced prediction markets as unregulated, illegal sportsbooks.

“I was like, ‘OK, I got to check this s(asterisk)(asterisk)(asterisk) out,’” Linhardt said.

Linhardt said he’s not a big-time gambler, but he started checking Kalshi daily and wagering “pocket money” on Big Ten basketball and national politics. He said he has bet on his beloved Husker basketball team — something he couldn’t do in a local casino where wagers on Nebraska college teams are prohibited.

“When you’re just putting small bets down, you might as well go with the team that you like,” Linhardt said.

Nebraska, where legal sports betting at casinos began in 2023, is one of 19 states that still prohibits online gambling.

Before prediction markets gained popularity, thousands of Nebraskans found ways to gamble through illegal bookies and offshore sites or by crossing into Iowa, where online betting is legal, said Mike Sciandra, the director of the Nebraska Council on Problem Gambling.

There’s no discernible difference between traditional sports betting and prediction markets when it comes to addiction, Sciandra said. Prediction markets provide “the same dopamine hits (and) the same financial consequences as any other form of gambling,” he said.

Sciandra has already seen clients in treatment who have struggled with prediction markets. As with any addictive technology, it will hit young adults the hardest, he said.

“I think we’re only at the tip of the iceberg,” Sciandra said.

Kalshi and Polymarket users put an average of $5.5 million on each Husker football game last season, according to a Flatwater analysis.

There are more unconventional markets available, too. Kalshi users put nearly $100,000 on whether the announcers of a recent Nebraska basketball game would mention phrases like “air ball,” “overtime” and “March Madness.”

Though sports attract most of the action, users can trade on anything with a definitive outcome, including elections, Oscar winners and oil prices. Kalshi users put $23,000 on Omaha’s mayoral election last year and have so far wagered more than $175,000 on Nebraska’s ongoing U.S. Senate race.

Those expansive offerings can attract Nebraskans who aren’t interested in sports — people like Braden Burns.

The Lincoln graphic designer became addicted to gambling as a teenager through the video game Counter-Strike, but he largely resisted the urge to bet the last five years, he said.

A few months ago, Burns opened the Robinhood app where he has an investment account and encountered the platform’s built-in prediction market. The 28-year-old has since wagered on topics of interest, such as politics and the Oscars.

Burns said he feels like he should stop, but then he sees something on the news he wants to bet on. He worries other young men will fall into the same trap.

“That layer of friction that I managed to maintain for the last five years is now gone,” Burns said. “The temptation is always there.”

Omaha finance executive Eric Rodawig followed prediction markets long before they hit the mainstream, but he began using Kalshi after it began offering trading on the 2024 election, he said.

Rodawig said he has enjoyed wagering on politics, sports and financial futures, but he also sees a secondary use for the platform: measuring public consensus.

When people put money on their predictions, it can reveal the “wisdom of the crowd” better than traditional polling, Rodawig said. In his job, for example, it’s useful to see what Kalshi users think will happen with federal interest rates, he said.

For Rodawig and Linhardt, people should be allowed to exercise free will and bet online if that’s how they choose to spend their money.

“People that are gonna get in trouble gambling are gonna do that anyway,” Linhardt said.

Action without taxation

For decades, Nebraska held firm on its prohibition of casino-style gambling even as neighboring states legalized and expanded ways to bet.

But in 2020, a series of ballot measures broke the levee, allowing racetrack-adjacent casinos to offer slot machines, card games and on-site sports betting — all taxed at 20% of gross revenue.

Since sportsbooks opened at Nebraska casinos in 2023, they have grown massively in popularity, taking in more than $9 million in revenue last year.

Still, there are some signs that unregulated prediction markets could be eating into the profits of legal operations, said Lynne McNally, WarHorse Casino’s head of government relations.

WarHorse’s sportsbooks in Omaha and Lincoln saw a 13% drop in betting on the Super Bowl this year, though the Kansas City Chiefs appearing in the game last year likely drove up wagering, a spokesman said.

In more than a dozen lawsuits, states and Native American tribes are seeking to ban Kalshi and other prediction markets. Nebraska Attorney General Hilgers joined a bipartisan group of attorneys general in a legal brief asserting that Kalshi is disregarding state and tribal authority to regulate gambling. A spokeswoman for Hilgers declined multiple requests for comment.

Tensions rose this week when Arizona’s attorney general filed criminal charges against Kalshi, alleging that the platform is running an unlicensed gambling operation. Kalshi denied the allegations and has maintained that it is not beholden to state regulations.

With early court rulings split so far, Chicago Mercantile Exchange Group CEO Terry Duffy said it’s likely the issue between states and prediction markets will end up at the nation’s top court. CME has partnered with FanDuel’s prediction market app.

“I don’t see how it doesn’t go to the Supreme ?Court for a definition of what is a prediction market on sports, and if that is the same as gambling,” Duffy told Reuters.

By circumventing Nebraska’s rules, prediction markets are dodging state gambling taxes that would go toward property tax relief, local governments and addiction services, said Morgan, the Ho-Chunk and WarHorse CEO.

“There are some wealthy companies who are exploiting this loophole and making a bunch of money off Nebraskans with Nebraska not having a say,” Morgan said.

State Sen. Dunixi Guereca, an Omaha Democrat, said Nebraska is already losing out on much-needed tax revenue by barring online sports betting, and the inability to tax prediction markets is compounding the issue.

“As a senator currently facing down an $800 million budget shortfall for the next fiscal year … I’m hoping that we’re able to put a sin tax on (prediction markets) because we have to get creative with how we find revenue here in Nebraska,” Guereca said.

A Kalshi spokesman said the company is a licensed derivative exchange, like the Nasdaq, that offers financial contracts on the outcome of future events.

“There is no ‘house’ on Kalshi, a major difference that means our business model looks nothing like that of sportsbooks,” the spokesman said in an email.

A DraftKings spokesperson said in an email that the company remains “dedicated to working collaboratively with (federal) regulators to uphold the highest standards of integrity in our operations.”

FanDuel did not respond to Flatwater’s questions, but a spokesman referenced a press release noting that the company plans to stop offering sports prediction markets in states like Nebraska if they legalize sports betting.

Polymarket did not respond to requests for comment.

WarHorse is now backing a proposed ballot measure that would allow casinos to operate online sportsbooks, but prediction markets would still undercut state law if it passes, Morgan said.

Morgan is hoping Hilgers will recognize the problem and issue cease-and-desist orders to prediction market operators.

“We may not be Wall Street experts, but we’re not stupid,” Morgan said. “You know when you’re being played.”

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This story was originally published by Flatwater Free Press and distributed through a partnership with The Associated Press.

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