In 2025, seven years into legalized sports betting, the industry faced some of its biggest challenges yet, rocked by multiple high-profile scandals, embroiled in taxation issues and confronted by a fast-growing disruptor to the traditional bookmaking model.
"It's a once-in-a-lifetime event watching these worlds collide, and very rarely do you see it happen in any industry, let alone all at the same time," said Max Bichsel, an executive with Gambling.com Group, which runs sportsbook affiliate websites.
If the legalization of sports betting reshaped the way Americans view sports, the emergence of prediction markets and government questions about sporting integrity might reshape the way Americans view sports betting. In October, a Pew Research poll found that 43% of U.S. adults say legalized sports betting is a bad thing for society -- up from 34% in 2022 -- and 40% say it's a bad thing for sports, an increase from 33%.
Here are the stories that dominated sports betting's year -- and will continue to be battlegrounds in 2026.
Peak scandal?
Over five weeks this fall, gambling scandals dominated the headlines.
In a single week in November, the FBI met with the UFC about an allegedly rigged fight, two Major League Baseball pitchers were federally indicted and accused of rigging pitches to help bettors, and the NCAA accused six former men's college basketball players from three schools of participating in gambling schemes.
Two weeks earlier, federal authorities arrested and charged 34 people -- including Miami Heat guard Terry Rozier, Portland Trail Blazers head coach Chauncey Billups and former NBA player Damon Jones -- in two gambling cases involving alleged insider betting and allegedly rigged poker games.
Billups, Rozier and Jones have pleaded not guilty, as have Cleveland Guardians pitchers Emmanuel Clase and Luis Ortiz.
There have been gambling cases in previous years -- think Shohei Ohtani's former interpreter or former NBA two-way player Jontay Porter -- but the high-profile nature of these cases, along with the volume, has attracted attention and concern. Congressional committees have asked the NBA and MLB for information about what the leagues are doing to prevent integrity threats in light of these cases.
"We're in a bit of a watershed moment this year," said Jason Van't Hof, a former vice president of investigations at integrity monitor IC360, which works with most of the major leagues. He believes the indictments and congressional attention will prompt the leagues to take further action, whether in public or behind the scenes.
Many of the cases involve individuals allegedly manipulating their performances so that bettors could wager on their statistics, whether that be pitches or points scored. That has increased scrutiny on player prop bets, which can be easier to fix because they are dependent on a single person's behavior.
"When they're just based off of individual performance, I think it's a lot easier for match fixing in that type of situation," an NCAA official told ESPN. "You don't have to get to the overall team, you could just have one individual that could manipulate those markets."
Prop bets have become increasingly popular in recent years, especially because they are often the building blocks for parlays and same-game parlays: DraftKings saw a significant increase in parlay handle mix from 2024 to 2025, according to the company's most recent earnings report.
After Clase and Ortiz were federally indicted, MLB and its partner sportsbooks established a $200 limit on bets involving individual pitches. The NCAA has long petitioned sportsbooks and state regulators to go further and eliminate player props on college players altogether.
The NCAA official said that players from smaller programs could be bigger targets for bet fixing because their teams are no longer in tournament contention or they have lesser pro aspirations. Most of the players the NCAA has investigated this season for gambling violations come from such smaller programs.
Industry advocates say the proliferation of scandals is proof that the regulatory system is working and that eliminating bets would only serve to drive the wagering underground.
"You're always going to have bad actors. We're never going to be able to completely eliminate it," a representative from a major sportsbook said. "But the goal is to really expose it, and by limiting what's offered, that's not going to do anything other than to make it go back to where it was before, which was the illegal markets."
Joe Maloney, president of the Sports Betting Alliance, an advocacy group for the major sportsbooks, said the gambling cases show the role sportsbooks play in catching wrongdoing.
"Hopefully, these announcements and these suspensions not only serve as a deterrent, but demonstrate how legal sportsbooks play an important role in exposing these bad actors," he said. "Fans aren't going to buy jerseys, fans aren't going to watch the games, fans aren't going to buy tickets if they think the competition is rigged, and bettors will not bet on the games if they think the competition is rigged."
However, in a letter to MLB in the wake of the Ortiz and Clase indictments, a U.S. Senate committee expressed concern over a "new integrity crisis" facing American sports.
"An isolated incident of game rigging might be dismissed as an aberration, but the emergence of manipulation across multiple leagues suggests a deeper, systemic vulnerability," the senators wrote. "These developments warrant thorough scrutiny by Congress before misconduct issues become more widespread."
The rise of prediction markets
While sportsbooks deal with gambling scandals, a new way to stake money on the outcome of sporting events has risen to disrupt the industry. Prediction markets, where users can bet on the yes/no outcome of events, have quickly gained momentum this year despite legal challenges and regulatory uncertainty.
One of the big players in the prediction market space, Kalshi, announced this month that it now sees over $1 billion traded on its platform each week, a 1,000% increase from 2024. Polymarket, the largest prediction market operator in the world, launched on a limited basis in the U.S. this month.
Sports account for the majority of Kalshi's trading volume, according to data collated by the user datadashboards on Dune Analytics, an open-source crypto data platform, and the company has gradually increased its sports offerings over the year. This fall, Kalshi began offering prop bets on the NBA and NFL, and on Monday, Tarek Mansour, Kalshi's cofounder, announced the launch of "combos," or multiple-leg trades similar to parlays.
Mansour has said that he didn't know what his product "has to do with gambling." "If we are gambling, then I think you're basically calling the entire financial market gambling," he added.
Prediction market companies say one difference is that users are not going up against the house but instead trading contracts with other users on the opposite side of the proposition. While bookmakers charge a vig on losing wagers, prediction markets make money from a transaction fee, similar to a broker, and have no stake in the result.
Traditional sportsbooks operate in 39 states and the District of Columbia. Prediction markets can operate in all 50 states because of the way they are regulated.
As a result, oversight of prediction markets is being contested in courts across the country. State gaming regulators, which oversee traditional sportsbooks, argue that Kalshi is violating state laws by offering event contracts that mimic sports bets. Kalshi argues it does not fall under state jurisdiction and is instead regulated by the Commodity Futures Trading Commission, a federal agency.
The CFTC has yet to weigh in. President Donald Trump's nominee to lead the agency was confirmed Thursday. Donald Trump Jr. is an adviser to both Polymarket and Kalshi.
Kalshi previously told ESPN that it underwent a six-year process to be certified as an exchange regulated by the CFTC. This allows them to list any new offerings through a self-certification process without prior approval from the federal agency, which can later review products and flag them for violations.
The NFL questioned the oversight of prediction markets and its implications for sporting integrity in congressional testimony last week.
"Without the comprehensive regulatory framework that now exists in 39 states and the District of Columbia, these products could be susceptible to manipulation or price distortion. In each of these state-regulated markets, regulators and state legislators closely monitor betting activity and, with input from professional sports leagues, can determine which bets and wager levels are acceptable," Jeff Miller, an executive vice president for the NFL, wrote. "Those guardrails do not exist in prediction markets."
The newly formed Coalition for Prediction Markets, which represents many of the largest operators in the space, including Kalshi, disputed Miller's testimony.
"This testimony is like saying the stock market has no rules," a coalition spokesperson told ESPN in a statement. "The CFTC's regulations on abusive or manipulative trading apply to prediction markets just like the SEC's regulations apply to the stock market. This activity is strictly prohibited by both the CFTC and prediction markets, and we use a variety of tools before, during, and after people trade to prevent illegal trading and bring enforcement action when violations happen."
Kalshi partners with IC360, which announced this month that it will work with Eventus, a market surveillance company, to monitor prediction markets.
Joe Schifano, the global head of regulatory affairs for Eventus, said that it isn't surprising to see instances of bad behavior early in a market.
"You have lots of new entrants. People need to be educated," he told ESPN. "There are absolutely going to be instances in a new market where people think that they can push the envelope. We've seen it, time and time and time again in history. So that's why we monitor."
Ian McGinley, a former director of enforcement for the CFTC, said that building expertise in a new market such as sports takes time.
"Every market is going to have the same kind of problems, whether you're talking the stock market, the crypto market, the betting market, the prediction market," McGinley told ESPN. "And so what you see in a lot of these markets are people who have inside information, either tipping it to someone else and then they trade, or they trade on it themselves."
McGinley said prediction market companies are obligated to report their data to the CFTC, which employs "sophisticated market surveillance tools." He added that the CFTC has never brought a case against prediction markets for insider trading or manipulation but that the agency can levy financial penalties and restraints on participation against violators.
In its congressional testimony, the NFL pointed to a prediction market recently accepting trades on whether phrases such as "concussion protocol," "late hit," or "roughing the passer" would be mentioned during game broadcasts.
"Congress and the CFTC should prohibit these and other types of objectionable bets among the many consumer and integrity protective measures needed before sports-related events contracts are legalized," Miller wrote.
McGinley, the former CFTC official, noted the similarities between these types of mention markets and player props.
"That's almost just like what we saw in the NBA cases, where if you're a particular player, and it's an up or down on whether you score above eight points, you can control that," he said. "Well, you can also control when you're on a call whether you say 10 words. And so exactly the same concern."
Van't Hof, the former IC360 executive, said that prediction markets pose a unique challenge for integrity monitors because of the vast range of topics offered on their platforms. People can trade on sports, politics, award shows, even the weather.
"If nothing else, you're increasing the volume of potential things that you're supposed to be monitoring," he said. "You're looking at so many different things. ... Just crazy amounts of things that people could be using their money on."
Still, as the legal battles rage on, prediction markets continue to gain momentum. DraftKings, which was named the official sportsbook and odds provider of ESPN earlier this month, launched a prediction market Friday. Fanatics and daily fantasy site PrizePicks are both already in the market, while FanDuel also has plans to launch. This fall, the NHL and UFC signed deals with prediction markets.
"It should be clear now -- prediction markets are here to stay," Mansour said in October.
A change in tax law
In early July, as Congress was rushing to pass President Trump's signature legislation, the One Big Beautiful Bill Act, professional bettors began to sound the alarm. The 940-page bill contained a change to the tax code that will have significant ramifications for them.
Bettors who itemize their taxes will be allowed to deduct only 90% of their losses against their winnings, as opposed to the previous 100%. In effect, this means bettors could lose money and still have to pay a significant tax bill, according to Jim Willis, a professor of taxation practice at Wake Forest University. In general, it will raise taxes on winnings.
"You could have a significant tax bill in a year where you truly are out of pocket several hundred thousand dollars and yet you're paying tax because you had winnings, and all of your expenses, including your losses, are subject to this 90% limit," Willis said.
Currently, a professional bettor's profit is calculated by adding up all their winnings -- from wagers or tournament prizes, for example -- and deducting the money lost on wagers or entry fees incurred. If, over the course of a year, a bettor spent $100,000 to win $100,000 to break even, they would currently not owe tax. But under the 90% rule, they would owe tax on the $10,000 difference between the amount won and the amount of losses allowed to be deducted.
The bill passed and will go into effect Jan. 1.
"It literally singles out gamblers. There's no other profession or career that this type of law applies to," professional sports bettor Bill Krackomberger told ESPN. "You may get rid of the pros, but I'll tell you one thing, you're going to get rid of a lot of the Joes too."
Congresswoman Dina Titus, whose district encompasses much of Las Vegas, said she has seen millions of responses from concerned citizens about the tax change and that it could drive professional and recreational bettors alike back to the black market.
"While the change may appear minor, it will have significant and harmful consequences," Titus wrote in a letter to the House Ways and Means Committee, which oversees tax legislation. "It unfairly burdens professional gamblers and casual players alike and will inevitably drive players toward offshore and unregulated markets where consumer protections are non-existent, thereby undermining responsible gaming efforts nationwide."
Congress' Joint Committee on Taxation estimates that, under ideal conditions, the tax change will raise $1.1 billion in revenue. Titus, however, believes it could be significantly less if bettors move to unregulated markets.
"They estimate it's $1 billion, but I think it will actually be less than that because I think if this goes into effect, it's going to send people to other markets like the black market or prediction markets or overseas offshore markets," Titus told ESPN. "It's going to discourage anybody from actually itemizing and declaring their winnings."
Titus introduced a bill in July to change the deduction back to 100%, but it has not been brought to the House floor. Congressman Jason Smith, who chairs the House Ways and Means committee, told ESPN the bill has bipartisan support.
"The gaming industry supports hundreds of thousands of jobs across the country, and I believe there is a bipartisan path forward to restoring full deductibility of gambling losses," Smith told ESPN in a statement.
It's possible that an adjustment could come as part of a different piece of legislation -- in the same way that the betting deductions change found its way into law through the One Big Beautiful Bill Act in the first place -- but with Congress' legislative calendar ending Friday, bettors appear poised to deal with a larger tax burden in 2026.