No Quick Compromise Expected in CFTC Lawsuits Against Nine States Over Prediction Markets
The CFTC has filed lawsuits against nine states whose attorneys general moved to block or restrict platforms such as Kalshi and Polymarket. Legal experts see little chance of an early settlement in this federal versus state clash over who gets to regulate event contracts.
The dispute boils down to one question. Are these contracts financial instruments that only the CFTC can oversee or a form of betting that falls under state gambling laws? According to reporting by CasinoBeats both sides have dug in making a practical deal hard to reach.
The Scale and the Standoff
The global predictions market industry is already worth around $4 billion a year. Analysts think that it will grow to $30 billion in the next four years. Yet states object to platforms like Kalshi which this week struck a partnership deal with the US pro padel league offering sports related contracts.
These contracts look like betting to the states. The CFTC calls them financial instruments. That core disagreement has produced lawsuits and pointed comments from both camps.
William Walsh, a partner at Benesch Law, said “A practical compromise is possible, but we may need to see more development in the court cases before either side is willing to concede much.” From the supplier side this kind of prolonged uncertainty is what keeps operators cautious about new product rollouts.
No Halfway Point on Preemption
The CFTC cases rest on preemption. Federal rules under the Commodity Exchange Act are said to override state gambling laws. States reject that view and insist event contracts are gambling by another name.
Adam Bjorn the CEO of the iGaming firm Plannatech and the operator of the Prime Sportsbook and Betcris platforms told CasinoBeats the pathway to a compromise exists if people are willing to walk it. He added that is a big if.
Alexandra Fedotova a legal associate at the Moscow based law firm White Stone said a deal that suits both parties will not be reached in the near term. She added there is no halfway point between exclusive federal jurisdiction under the Commodity Exchange Act and state licensing regimes. Either preemption applies or it does not.
“US legal history tells us how long these federal-state standoffs take to resolve,” Fedotova said. International legal experts agree the impasse leaves little room for quick fixes.
Sports Contracts Remain the Flashpoint
Sports related event contracts are the biggest sticking point. The CFTC June rulemaking reaffirms exclusive federal oversight of prediction markets including those tied to sports. States want authority over anything that looks like gambling.
Carl Kennedy Partner and Co Chair of Financial Markets and Regulation Practice at the law firm Katten Muchin Rosenman pointed to an important nuance in the rulemaking. It could let states retain authority over gambling that happens outside CFTC regulated markets.
Linda Goldstein a partner at CM Law suggested one possible middle ground would be a form of partial preemption. The Supreme Court would need to determine that sports related event contracts fall under state gambling laws while the CFTC retains exclusive jurisdiction over other types of event contracts.
Peter Sanchez Guarda the CFTC former Acting Associate Director and Special Counsel said a workable compromise would likely involve the CFTC establishing clearer boundaries regarding what constitutes a legitimate economic hedging for businesses versus pure retail gambling.
Where the Risk Lies
The risk is that this acrimonious fight drags on for years. Platforms and their sports partners must operate under directly opposing regulatory signals in the meantime.
Walsh outlined one compromise route. The CFTC could adopt clearer listing criteria integrity protections and surveillance expectations for sports contracts plus data sharing arrangements with leagues or state regulators. That might address state concerns without fully ceding federal ground.
Kennedy said a compromise will likely occur through either congressional action or definitive judicial resolution. Fedotova agreed that where a genuine compromise is possible is in Congress not between the regulators themselves. But that requires legislation and the political incentive will only crystallize after the Supreme Court rules on preemption.
The industry will keep moving. Operators who track these cases closely will be better positioned when clarity finally arrives whether from the courts or from Capitol Hill.
Reporting: Don’t Expect a Compromise in CFTC’s Prediction Market Battle with States, Lawyers Warn (casinobeats.com)
