Can State Police Powers Override CFTC Preemption on Sports Event Contracts? New Mexico’s AG Makes Its Case
Key Takeaways
- Core Challenge: New Mexico Attorney General Raul Torrez argues the CFTC lacks standing, its preemption claim is weak, the Commodity Exchange Act does not override state gambling laws, and Kalshi facilitates illegal underage sports betting.
- Tribal Dimension: The Mescalero Apache Nation sued Kalshi in May to block the platform on tribal lands, prompting Kalshi’s June 24 motion to dismiss citing lack of tribal jurisdiction and federal preemption.
- Litigation Scale: The brief is part of 10 federal lawsuits brought by the CFTC against states targeting prediction products, with courts split on legality.
- Deadlines Set: The CFTC has until July 30 to reply in one of 10 federal lawsuits. The Ohio case has been combined with a similar case in Tennessee and is scheduled for oral argument July 30.
Will federal commodity regulation ultimately trump a state’s historic authority over gambling? New Mexico Attorney General Raul Torrez doesn’t think so. In a filing delivered late Thursday, Torrez directly questions the CFTC’s standing and its invocation of the Supremacy Clause to keep sports event contracts alive in the state. The brief asserts that Kalshi facilitates illegal underage sports betting and that the agency’s arguments fall short on multiple fronts.
As reported by InGame, the response came in one of 10 federal lawsuits the CFTC has filed against states seeking to restrict prediction products. Retail sports betting has operated in New Mexico since October 2019, but is limited to tribal lands. The state court had sought a temporary restraining order against Kalshi, prompting the federal push for a preliminary injunction.
New Mexico’s Assertion of Historic Police Powers
Torrez emphasized that dating back to its territorial days, New Mexico has exercised its inherent police power to regulate gambling. He contrasted this with the CFTC’s official 178-year history of commodities futures markets, which does not mention sports bets. The state argues the Commodity Exchange Act does not preempt its laws, sports event contracts are not swaps under the CEA definition, and federal preemption should be a last resort.
The brief stresses a presumption that federal law does not override the historic police powers of the states without clear and manifest intent from Congress. It further contends that field preemption does not apply, as the CEA does not comprehensively regulate sports betting in a manner that leaves no room for New Mexico’s involvement. According to Compliance Week coverage of the wider Kalshi and CFTC clashes with states, these arguments echo positions taken across more than a dozen jurisdictions and tribal entities.
These are not abstract legal points. They strike at whether prediction products that mimic sports betting can operate under a federal umbrella while states retain their traditional oversight role.
Tribal Sovereignty Enters the Fray
The dispute extends beyond state lines. The Mescalero Apache Nation sued Kalshi in May in an effort to keep the platform off tribal lands. Kalshi responded with a June 24 motion to dismiss, arguing it does not fall under tribal jurisdiction because it is not a member and that federal law preempts tribal law.
As InGame (@InGameHQ) posted on X: “Arguing that it doesn’t fall under tribal jurisdiction because it is a not a member and federal law preempts tribal law, Kalshi filed a motion June 24 to dismiss a case against it brought by New Mexico’s Mescalero Apache Tribe. In addition, Kalshi claims that “no tribe can…”
This tribal action highlights a structural tension. Sports event contracts debuted about 18 months ago, and tribes have consistently maintained they belong under state or tribal regulation rather than CFTC oversight. The New Mexico brief reinforces that sovereignty considerations cannot be sidelined in these disputes.
Integrity Concerns and the Impartial Access Twist
The filing also engages the CEA’s Special Rule, which directs the CFTC not to approve contracts contrary to the public interest, specifically naming gaming. A notable section addresses the impartial access requirement for CFTC-regulated platforms. The brief presents the impartial-access rule as an anti-discrimination command, not a compulsory obligation for designated contract markets to facilitate sports betting in all 50 states.
The brief adds that even assuming sports event contracts are not prohibited, Congress enacted a floor but not a ceiling, leaving room for state gambling laws. Additional arguments include that the CFTC’s preemption idea violates the Major Questions Doctrine, that these contracts are not financial tools used to hedge risk, and that there is no financial, economic, or commercial consequence tied to them. The CFTC cannot prove irreparable harm if banned in New Mexico, the state contends.
Recent events underscore related integrity risks. According to Focus Gaming News, a longtime White House teleprompter operator was placed on unpaid leave after allegedly using inside knowledge to win more than $100,000 on Kalshi’s Mentions market across more than a dozen Trump speeches over a three-month period. Kalshi’s head of enforcement Bobby DeNault said the company’s surveillance team “promptly flagged and referred these trades to the CFTC, and we are cooperating and assisting regulators.” White House Press Secretary Karoline Leavitt and spokesperson Davis Ingle emphasized strict ethics guidelines.
This episode, while separate, illustrates how prediction market activity can quickly draw regulatory scrutiny even as broader jurisdiction battles continue.
What Combined Coverage Underemphasizes
Reporting from InGame, Compliance Week, and Focus Gaming News captures the legal arguments and the immediate Kalshi-related developments effectively. Yet the synthesis reveals a gap: insufficient focus on the operational fragmentation this creates for client-partners attempting national scaling. Courts are split, with Maryland, New York, and Nevada agreeing sports event contracts should be banned, while New Jersey has ruled they should not. The combined Ohio-Tennessee case oral argument on July 30 may clarify the swap definition issue, but multiple parallel suits risk prolonged uncertainty.
This environment tests whether the convergence of prediction markets with sports betting can overcome regulatory hurdles without clear federal-state alignment. The coverage also gives lighter treatment to how tribes experience these preemption claims as direct challenges to sovereignty, an area where structural shifts could redefine participation.
Where the Risk Lies
The primary risk is not a single adverse ruling but sustained fragmentation. If preemption arguments consistently fail, operators face a patchwork of state and tribal restrictions that undermine the impartial access model the CFTC appears to advocate. Kalshi and similar platforms must navigate potential bans while defending their products as financial tools rather than gambling. The Major Questions Doctrine invocation adds another layer of legal vulnerability at the federal level.
Counterarguments from the CFTC side emphasize that these are derivatives under its expertise, not traditional sports bets subject to state police powers. Yet the New Mexico brief’s emphasis on the absence of sports bets in 178 years of CFTC history exposes a limitation in that position. The impartial access rule may require fair treatment of participants but does not compel offering every market everywhere, as the state persuasively notes.
What This Means for Operators and Investors
This latest filing signals that regulatory fragmentation will remain an operational planning input for the foreseeable future. Operators should model scenarios around the July 30 deadlines, assessing exposure in New Mexico and parallel jurisdictions where courts have already signaled skepticism. Investors evaluating prediction market platforms would benefit from stress-testing revenue assumptions against potential state-by-state exclusions, particularly where tribal sovereignty intersects with retail sports betting exclusivity. The path forward requires close tracking of these cases, as outcomes will determine whether sports event contracts achieve national coherence or remain confined by jurisdictional boundaries.
