A coalition of attorneys general from 44 states has urged the Commodity Futures Trading Commission to abandon a proposed prediction-market rule, arguing that the agency lacks authority under the Commodity Exchange Act to regulate contracts tied to sports outcomes.
In a letter filed as the public-comment period closed on the CFTC proposal, the state officials said sports-related event contracts fall within an area long governed by state gambling and sports-betting laws. The letter, led by Ohio Attorney General Andy Wilson, asks the commission to replace its proposal with a rule that the states say conforms to both the Commodity Exchange Act and the U.S. Constitution.
The intervention raises the stakes in a mounting jurisdictional fight over platforms such as Kalshi, which offer federally regulated contracts allowing users to take positions on the outcomes of events, including sports. The CFTC and several states are already fighting in court over whether those products are derivatives subject to the commission’s exclusive jurisdiction or wagers that states may restrict under gambling laws.
The states’ position is straightforward: a federally regulated trading venue cannot turn sports betting into a commodity-market product merely by structuring it as an event contract. Their letter argues that the CFTC’s proposed approach would extend federal power into gambling regulation without a clear mandate from Congress.
States challenge the CFTC’s reading of its authority
The Commodity Exchange Act gives the CFTC authority over commodity derivatives markets, including designated contract markets. The commission has maintained in disputes with states that certain sports-event contracts traded on federally overseen exchanges come under that authority, limiting the ability of state regulators to impose separate restrictions.
The attorneys general dispute that interpretation. They told the CFTC that its proposal goes beyond the statute’s limits and intrudes on powers states have historically exercised over gambling, consumer protection and the integrity of sporting events.
Their filing comes during a period in which the agency is weighing how to apply its public-interest standard to prediction markets. That standard can require the CFTC to consider whether particular event contracts involve unlawful activity, gaming, terrorism, assassination, war or other issues viewed as contrary to the public interest.
Sports contracts have become one of the most contentious applications of the framework. A contract paying out if a team wins a game can resemble a conventional sports wager in economic terms, even if it is bought and sold through a federally registered marketplace and described as a financial contract.
The states argue that the resemblance is more than superficial. State licensing systems commonly impose requirements on sports-betting operators involving age verification, geolocation, responsible-gambling measures, advertising, consumer complaints and cooperation with sports leagues. A federal event-contract structure could bypass parts of that system if the CFTC’s jurisdictional view prevails.
Courts are producing conflicting results
The legal landscape remains fragmented, with recent cases producing different outcomes in different states.
A federal judge blocked Minnesota from enforcing a newly enacted ban on prediction markets, according to the developments cited in the states’ letter and related litigation. The decision gave a temporary advantage to platforms challenging state restrictions, though it did not resolve the broader question of federal authority over sports-event contracts.
In New York, a federal judge again declined to prevent the state from enforcing its gambling laws against Kalshi. That ruling leaves the company exposed to state enforcement while its broader challenge proceeds.
Other courts have taken positions that favor state restrictions. A Michigan judge issued a temporary restraining order in June barring Kalshi from offering sports-related event contracts in the state. A Washington court also granted a request in July to temporarily block similar offerings under Washington law.
Those divergent orders create a difficult operating environment for platforms and users. A company’s ability to offer a sports contract may now depend on the jurisdiction where the customer is located and on the procedural status of litigation in that state. Temporary orders also mean the legal position can change quickly before courts reach final decisions on the merits.
The CFTC’s eventual rulemaking could shape those disputes, but it would not necessarily end them. States are challenging the agency’s statutory interpretation itself, while platforms are arguing that federal commodities law preempts state gambling enforcement. The courts must address questions of congressional intent, federal preemption and the boundaries between commodities regulation and traditional state police powers.
NFL adds pressure over integrity safeguards
Professional sports leagues have also begun placing their concerns directly before the CFTC. In a July 27 letter to CFTC Chair Michael Selig, the National Football League urged the commission to impose tighter limits on sports prediction markets.
The NFL cited game integrity and consumer-protection concerns connected to event-contract rules. Sports leagues have long focused on risks that betting markets can create around insider information, attempts to influence outcomes and threats directed toward athletes or officials. Prediction markets may present related issues when their contracts are linked to game results, player performance or other sporting events.
The league’s intervention does not settle the legal classification question, but it adds practical pressure to the regulatory debate. State-regulated sportsbooks typically operate under detailed monitoring arrangements, reporting obligations and league partnerships. The CFTC will face scrutiny over whether federally supervised event markets should carry comparable safeguards if sports contracts are permitted.
Rulemaking could set the next battleground
The states’ letter seeks a revised CFTC rule rather than a narrow exemption for particular jurisdictions. That approach places the commission’s proposed framework at the center of a dispute that extends beyond individual enforcement actions against Kalshi or other operators.
A rule favoring broad federal authority could encourage more event-contract offerings tied to sports and intensify state challenges. A more restrictive rule could limit those products on federally regulated markets, while leaving political, economic and other forms of forecasting contracts under a different regulatory analysis.
The immediate consequence is continued uncertainty rather than a settled national framework. Minnesota, New York, Michigan and Washington already show that courts are treating these disputes differently. Until appellate courts provide clearer guidance, sports-related prediction markets will remain caught between two regulatory systems that apply sharply different labels to the same underlying activity: a tradable derivative for federal purposes, or sports wagering under state law.
For deeper insight into evolving prediction markets regulation and strategy, explore how upcoming shifts could transform event-based trading.
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