Prediction Markets Could Face Liability if Deemed Addictive, Says Law Firm
Posted on: March 3, 2026, 10:47h.
Last updated on: March 3, 2026, 10:47h.
- Prediction markets could contend with legal liability if courts view the industry as pushing an addictive product
- Getting there requires courts to make judgments on whether the industry is operating in the realm of finance or as gaming enterprises
- Plaintiffs face significant though not impossible burdens of proof
Prediction market operators believe they’re financial services firms while critics claim these companies are wagering entities. How courts view yes/no exchanges will go a long way toward determining potential legal liabilities.
The prediction markets industry is already facing a spate of state-level regulatory challenges, but there are mounting class actions brought by jilted retail traders, which are opening the door to significant legal debate. In a report on potential legal implications for prediction markets and plaintiffs, Yosi Yahoudai, founder and managing partner of J&Y Law, says the prominent legal issue surrounding these platforms isn’t their legality, but their design.
If evidence shows that companies understood the psychological impact of their design, recognized youth vulnerability, and prioritized growth over safeguards, courts may treat these cases less like financial disputes and more like product liability claims involving digital damages,” he observes.
To date, some of the class actions targeting prediction markets focus on whether or not the companies are operating as unlicensed sportsbooks in disguise. Those arguments could be woven into broader claims about design and potential addictive intent.
Prediction Market Design Is Critical
As Yahoudai notes, it’s possible for plaintiffs to bring cases against prediction markets on the basis of design, but there are moving parts.
For example, those cases would likely rest on legal theories including consumer protection violations, deceptive practices, failures to warn, negligent design and possible targeting of vulnerable demographics. The J&Y founder adds that in order for cases brought on those grounds to be successful, plaintiffs must prove harm incurred was tied to the platform’s structure or practices, “measurable damages occurred,” the operator employed flimsy safeguards or the platform knew its design could be harmful to users. There is some precedent for such claims.
“This is not new territory. Lawsuits against social media companies and gaming platforms have advanced similar arguments about addictive design and youth targeting,” adds Yahoudai.
He points out that claims brought on design grounds will face the marquee legal standards of foreseeability and intent.
Younger Bettors, Traders Could Be Vulnerable
Prediction firms are attempting to expand use cases and appeal to professional market participants. Some analysts and experts believe the industry will accomplish those goals over the long-term, but some critics assert the industry’s exposure to sports event contracts is luring unwitting young bettors.
Yahoudai says some of the younger people getting involved with prediction markets believe their participation is an avenue for more closely observing economics, politics, or sports, but that line of thinking obfuscates potential risks.
“According to the National Council on Problem Gambling, approximately 2.5 million U.S. adults meet criteria for severe gambling problems, and another 5–8 million experience mild or moderate gambling-related harm,” said the lawyer in his post. “Younger adults consistently show higher rates of risky gambling behavior than older groups.”
No comments yet