Key takeaways
- The states argued that sports-related prediction markets operate like betting and not federally regulated derivatives.
- Kalshi’s court victories have raised the stakes for preemption in the enforcement of gambling laws nationwide.
- Attorneys general have warned that CFTC oversight could weaken drug, integrity and insider protections.
States declare sports markets subject to gambling supervision
A multistate coalition sent a letter on April 30, 2026, to Commodity Futures Trading Commission (CFTC) Chairman Michael S. Selig, arguing that sports-related prediction markets should remain under state gambling oversight rather than federal derivatives regulation. The attorneys general said the CFTC does not have exclusive authority over these contracts because they operate like bets and not swaps or other financial instruments.
The letter draws a clear line between derivatives markets and sports betting. States said prediction market users can bet on game winners, point spreads, totals and individual player statistics, which closely aligns with the sports betting business. The letter states:
“Traditional sports betting and sporting event contracts offered in Designated Contract Markets (“DCMs”) have no significant differences.”
The coalition argued that a new label does not change the underlying transaction. Bettors always risk money on uncertain sports results for possible winnings.
Federal Court Fights to Raise the Stakes of Kalshi Contracts
The attorneys general also challenged the characterization of sports contracts as swaps under the Commodity Exchange Act. They said the exchanges must involve events linked to financial, economic or commercial consequences. They say match results and player statistics do not create the type of measurable economic exposure that derivatives are intended to cover. Expanding federal derivatives law to cover sports betting, the letter warns, would move a traditional state-regulated activity under the CFTC’s control.
That fight intensified in 2026. A federal court in Tennessee granted Kalshi a preliminary injunction on February 19 after concluding that Kalshi was likely to succeed based on arguments that the contracts qualified as swaps under the Commodity Exchange Act. On April 6, the Third Circuit upheld an injunction against New Jersey, finding that federal preemption likely protects Kalshi from enforcement of state gambling laws. The CFTC also joined federal prosecutors in April in a first-of-its-kind prediction market insider trading case involving an Army soldier accused of using nonpublic government information.
States have warned that expanded federal oversight could weaken protections built around gambling risks. Their letter cites licensing rules, minimum age limits, voluntary exclusion programs, suspicious activity reporting and restrictions intended to protect sporting integrity. The attorneys general said the CFTC’s framework is designed for financial markets and not for gambling harms such as addiction, financial hardship and improper betting by sports insiders or participants. The letter states:
“States have the expertise, experience and tools to regulate sports betting, as they have for more than a century. »
The letter was signed by the attorneys general of Ohio, Nevada, New Jersey, New York, Tennessee, Utah, Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, New Mexico, North Carolina, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Vermont, Virginia, and Wisconsin. The District of Columbia also joined.
