🥊 The Corruption Series: How blue states can win the high-stakes fight over prediction markets
PREDICTION: Trump will choose himself over Americans.
Welcome to Upper Cut’s three-part corruption series. For the next three issues, we’re homing in on the rampant corruption of the Trump administration — and, of course, how to fight back.
Corruption is foundational to the Trump administration. The Trump administration has used its power to accumulate billions of dollars in wealth for his family and provide countless benefits to his associates, through shady crypto deals, no-bid contracts for allies, and other favors. Just this week, Trump settled a lawsuit against his own IRS that could send nearly $1.8 billion to his political allies. All of this while nearly half of Americans can’t cover essential expenses.
Fortunately, voters understand what’s going on — and fighting this corruption may be Democrats’ secret political weapon in 2026. Recent polling shows that voters view corruption as one of the country’s biggest issues, and are connecting it to the broader affordability crisis. Nearly three-quarters (74%) of battleground voters say corruption affects what they pay for healthcare, and nearly two-thirds say it impacts the cost of groceries (65%).
As our recent polling showed, voters want politicians who are willing to fight. Fighting corruption is a great place to start, and Democrats have work to do. In a recent survey of battleground house districts, only 26% of voters said they trust Democrats to clean up corruption. With only 28% trusting the GOP, Republicans know they have a problem, too. And to distract from Trump’s grift, the GOP has been focused on attacking alleged fraud in blue states.
It’s a good bet that the party seen as more willing to tackle corruption is the party to take control of Congress in November. And with less than six months until the midterms, it’s time to get to work.
We have some thoughts for where blue-state leaders could stand up, but we want to hear from you:
Let’s start with prediction markets — where there’s a critical fight between states and the feds to determine the industry’s future. Trump, and his Commodity Futures Trading Commission (CFTC), want the federal government to have “exclusive regulatory authority“ over prediction markets — platforms like Kalshi and Polymarket where users place bets on real-world outcomes.
That would be a far more favorable framework for the industry. It would allow prediction market companies to operate nationally, rather than having to pursue individual licenses in all 50 states. This has big business implications. If regulated under state gambling laws — similar to sportsbook companies, like FanDuel (which to date can operate in fewer than half of the states) — prediction markets would be significantly limited in their ability to scale.
So far, the Trump approach has been good for insiders, and bad for regular people. Recently, nine linked Polymarket accounts collectively won $2.4 million betting almost exclusively on military operations in Iran, with a 98% win rate. Odds are that’s not luck.
States (both blue and red) have been fighting back — and aren’t buying the CFTC’s exclusive jurisdiction argument. Many of them want to treat prediction markets like gambling — and restrict their ability to operate without proper state licensing. Over the past year, they have filed more than 20 lawsuits and cease-and-desist actions, mostly under state gambling laws. Whoever wins sets the rules and shapes the profits.
In Arizona, AG Kris Mayes filed 20 criminal charges against Kalshi for offering unlicensed wagering and taking bets on Arizona elections.
In Massachusetts, AG Andrea Joy Campbell obtained a preliminary injunction prohibiting Kalshi from offering sports contracts without a license.
Now, Trump’s CFTC is beginning to push back. The CFTC has now sued six states — Arizona, Connecticut, Illinois, Minnesota, New York, and Wisconsin — seeking to pre-empt state law. It also filed an amicus brief in Massachusetts on Kalshi’s behalf. (Let’s not forget that former Kalshi lawyers are landing key roles at the DOJ, all the while the DOJ and CFTC have dropped their investigations into Polymarket.)
Trump’s approach is deeply out of touch with the American public. Americans (61% to 8%) see prediction markets as closer to gambling than investing — and only 4% think they’re good for society.
So why is Trump picking this battle? Well, prediction markets have become a direct siphon to Trump family bank accounts.
Trump family members are advisors and financial backers to the platforms, and Trump Media announced plans to integrate a prediction market function into Truth Social.
Prediction market companies — and therefore investors like the Trumps — are already seeing a payoff: since Donald Trump Jr.’s venture firm invested in Polymarket in August 2025, the company’s valuation has jumped nearly tenfold to $9.6 billion (meanwhile, Kalshi is valued at $22 billion).
In other words, Trump is pushing for a regulatory framework to protect an industry his family has a financial interest in — and is suing states who get in his way. That’s corruption — and it’s exactly the kind of fight Democrats should pick.
Blue-state leaders must respond with action, not talking points. We’ve got some ideas for how.
THE PUNCH LIST
Are you looking to fill budget gaps? Raise revenue by taxing prediction market winnings like gambling income. With the Trump administration’s ongoing assault on state budgets, states need to get creative. With a lack of guidance from the IRS on how to tax prediction market winnings federally, states can establish their own classifications. In Illinois, the Prediction Markets Regulation and Taxation Act proposes a 50% tax on the earnings of prediction market platforms, and a $1 million initial license and annual renewal fee on the companies. When states decided to tax sports betting, it created a windfall — in the fourth quarter of 2025 alone, states brought in more than $1.1 billion. Here’s another chance.
Are you DE Gov. Matt Meyer? Require prediction market platforms to obtain a money transmission license. Companies like Kalshi (a DE LLC) accept users’ deposits, hold their balances, and pay out winnings — that’s money transmission, the same activity companies like Venmo get state licenses to conduct. Delaware can enforce its licensing requirements — which come with the right to examine records, and capital and reserve requirements.
Are you a state legislator? Stand up a regulatory infrastructure for prediction markets. Right now, prediction market companies are exploiting the gaps between gambling law, commodities law, and financial regulation. Close them. New York lawmakers are pursuing two potential paths: the ORACLE Act would restrict offering contracts on sensitive topics like elections, sports, and wars, while the Prediction Market Regulation Act would require state financial licensing, disclosures, anti-money laundering controls, and audits. Different mechanisms, same principle: the feds don’t have exclusive authority here.
Are you a Governor? Follow the lead of IL Gov. JB Pritzker, MD Gov. Wes Moore, and NY Gov. Kathy Hochul and ban state employees from betting on prediction markets. This one is easy — no government employee should be able to profit off inside information. Full stop.
FIGHTING FIRE WITH FIRE
🥊 It’s not just Kalshi and Polymarket. NY AG Letitia James sued crypto firms who are getting into the game. The prediction market loophole is spreading, but as AG James says: “Gemini and Coinbase’s so-called prediction markets are just illegal gambling operations, exposing young people to addictive platforms that lack the necessary guardrails.”
🥊 MN Gov. Tim Walz goes for the jugular: On Monday, Walz signed a bipartisan bill to make Minnesota the first state to ban prediction markets.
HERE’S THE MESSAGE
After signing an executive order banning state employees from wagering on prediction markets, NY Gov. Kathy Hochul made it clear who she’s fighting for:
“Our actions will ensure that public servants work for the people they represent, not their own personal enrichment. While Donald Trump and DC Republicans turn a blind eye to the ethical Wild West they’ve created, New York is stepping up to lead by example and stamp out insider trading.”
Upper Cut is a collaboration between Salt River Valley Project and Evergreen Legal — two organizations that believe punching back is the policy playbook this moment demands. It’s how we fight a rigged system, make courage contagious, and deliver for people against the leaders holding them down.