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A coalition of 44 state attorneys general has formally challenged the Commodity Futures Trading Commission (CFTC), asserting the federal agency lacks authority to regulate sports-related event contracts on prediction markets. This move intensifies an ongoing jurisdictional battle where states argue these contracts are sports betting, falling under their purview, while the CFTC maintains they are regulated ‘swaps.’ The dispute, fueled by the rising popularity of sports prediction markets, is likely heading for a Supreme Court showdown.
A significant regulatory showdown is brewing as a formidable coalition of 44 state attorneys general has officially challenged the Commodity Futures Trading Commission (CFTC) regarding its jurisdiction over sports-related event contracts on burgeoning prediction market platforms. This high-stakes dispute centers on whether these popular trading instruments constitute state-regulated sports betting or federal-regulated financial 'swaps.'
The collective voice of the states, led by Ohio Attorney General Andy Wilson, was articulated in a powerful letter sent to the CFTC just as the public comment period for the agency's inaugural proposed rule on prediction market regulation concluded on Monday evening. The proposed rule, which has been under intense scrutiny, specifically zeroes in on the controversial sports offerings that have fueled a surge in prediction market volumes.
The Commodity Futures Trading Commission headquarters in Washington, Dec. 23, 2022. Ting Shen | Bloomberg | Getty Images
"The Proposed Rule goes beyond the CFTC's statutory powers, is in tension with the Constitution, and would otherwise be arbitrary and capricious in its current form," the attorneys general asserted. They called upon the CFTC to "start afresh with its rulemaking and clarify that sports bets and gambling cannot be traded on [designated contract markets], but are instead subject to state law." Notably, attorneys general from Florida, Georgia, New Hampshire, Missouri, and Texas did not join the letter.
This jurisdictional clash has escalated dramatically as prediction market exchanges witnessed an explosion in activity, largely propelled by the immense popularity of their sports-related contracts. Events like the 2026 FIFA World Cup sent platform volumes soaring to unprecedented levels, drawing regulatory attention from both state and federal bodies.
The CFTC, alongside the prediction market platforms themselves, argues that all event contracts are essentially financial swaps, thereby falling under the commission's exclusive regulatory authority as derivatives. Conversely, states across the nation contend that these sports-related contracts bear too strong a resemblance to traditional sports betting, a domain historically governed by state law.
In June, the CFTC unveiled its initial draft rules for regulating prediction markets, placing significant emphasis on the contentious sports-related contracts. The draft even attempted to define "gaming" as an activity undertaken for recreation or entertainment, governed by rules, and based on measurable outcomes determined by skill during the activity itself. This definition, however, immediately drew criticism.
Derivatives marketplace CME Group, which ironically acts as FanDuel's CFTC-regulated exchange for its sports prediction markets, sharply disagreed with the CFTC's definition. "By defining 'gaming' as the sport itself rather than the financial wagering on the sport, the CFTC's definition suggests the [Commodity Exchange Act] is preempting state sports regulations, which is a striking overreach," wrote CME general counsel Jonathan Marcus.
The CFTC has consistently invoked federal preemption in court proceedings across the U.S. to defend its perceived exclusive jurisdiction over prediction markets, engaging in litigation against nine states. Meanwhile, new prediction market platform Rothera, launched in June, paradoxically supports the CFTC's "gaming" definition, believing it correctly focuses on the activity rather than the wagering aspect, which could otherwise sweep in all event contracts.
Most observers of the prediction market landscape anticipate that the U.S. Supreme Court will ultimately deliver the final verdict on who holds the regulatory reins for sports-related event contracts. Until then, a cascade of often conflicting lower court decisions continues to shape the immediate status of these market offerings. For instance, a Michigan judge blocked Kalshi from offering sports bets in late June, while a federal judge in Minnesota simultaneously issued a temporary block on a statewide ban on prediction markets.
Watch: How event contracts are testing Wall Street’s regulators (7:52)
The evolving legal landscape is further complicated by business relationships. CNBC and Kalshi, for example, have a commercial relationship encompassing customer acquisition and a minority investment, as disclosed by the publication.
The following chart illustrates the states involved in battles with prediction markets:
