CFTC and States Battle for Authority Over Prediction Markets as Litigation Accelerates

The question of who regulates prediction markets, especially sports event contracts, pits the Commodity Futures Trading Commission against state gaming regulators. Panelists at Predict 2026 in New York described the resulting overlap as a legislative mess, with voluminous litigation that turns on federal preemption and the legal character of the contracts themselves.

Rob Schwartz, partner in the futures and derivatives practice at Morgan Lewis & Bockius and former CFTC general counsel, described states versus the CFTC as a legislative mess on our hands. He traced parallels to 1688 descriptions of trading as both gambling and risk-hedging economic activity. Tyler Badgley, CFTC General Counsel, outlined four litigation buckets: designated contract markets suing states in federal court, states pursuing enforcement actions including criminal indictments, the CFTC seeking preliminary injunctions against state gambling laws, and a catch-all category that includes class actions and tribal claims under the Indian Gaming Regulatory Act of 1988.

Badgley said the litigation is voluminous and fast moving. The Arizona attorney general filed a 20-count indictment against Kalshi in March for unlicensed gambling and illegal election wagering. In April a federal judge issued a temporary restraining order blocking Arizona from continuing that case. Across all matters, the two decisive questions are the scope of the Commodity Exchange Act and the definition of a swap, plus the CEA’s preemptive effect to the extent it exists.

Circuit Splits Increase Prospect of Supreme Court Review

Elliott Stein, senior litigation analyst with Bloomberg Intelligence, said there are three circuit court splits going every which way. Stein expected the Supreme Court to accept a case by the end of the year, with briefings in the first quarter, arguments in April, and a decision by July. One argument against review is that most rulings remain at the preliminary-injunction stage, which the Court ordinarily prefers to avoid until final judgments emerge. Additional decisions are pending from the Massachusetts Supreme Court and the Fourth Circuit, including Kalshi’s challenge to Maryland lottery and gaming regulators.

As reported by CDC Gaming, the panelists agreed the Supreme Court should provide the clarity now missing. Until that occurs or Congress acts, the conflicting federal and state positions leave the legal boundary between gambling and derivatives unsettled.

Where the Risk Lies

The persistent circuit splits and preliminary nature of many rulings risk prolonging uncertainty. Market participants face the possibility of inconsistent enforcement until the core CEA preemption questions receive definitive resolution.

Reporting: CDC Gaming

Generated by SCCG’s automated editorial system from published source reporting. SCCG Management holds editorial responsibility.