The Commodity Futures Trading Commission’s approach to prediction markets is under fire as state and tribal regulators challenge federal intervention, raising questions about the future of event contracts and regulatory authority
The Commodity Futures Trading Commission (CFTC) is facing mounting criticism from state and tribal regulators over its handling of prediction markets, with legal disputes intensifying across multiple jurisdictions. At the center of the controversy are event contracts offered by platforms such as Kalshi, which have drawn scrutiny for potentially violating long-standing state and tribal gambling laws. The debate has escalated as the CFTC pursues rule changes and intervenes in state-level litigation, prompting concerns about federal overreach and the future of prediction market regulation in the United States.
Regulatory Tensions and Legal Battles
State and tribal authorities argue that prediction markets, particularly those offering contracts on sports and political events, undermine established gambling frameworks. Amanda Fischer, chief operating officer and policy director at Better Markets and former SEC chief of staff, has been a prominent critic, warning that federal actions threaten state and tribal sovereignty. The CFTC has taken the unusual step of suing several states, including Arizona, Illinois, Kentucky, Utah, Connecticut, and New York, over their efforts to regulate or prohibit prediction markets. In Utah, a federal judge recently upheld the state’s right to enforce strict anti-gambling laws against Kalshi and similar platforms, while in New York, the CFTC has used emergency powers to keep Kalshi operational despite a $36 billion lawsuit from the state.
Proposed Rule Changes and Industry Response
In June, the CFTC issued a notice of proposed rulemaking to amend Rule 40.11, which currently bans certain event contracts—such as those involving terrorism, assassination, war, and unlawful gaming—from being listed on registered exchanges. The proposed changes aim to clarify the definition of “gaming” and address ambiguities that have allowed prediction market operators to argue for broader federal oversight. Critics contend that these amendments are an attempt to sidestep state and tribal authority by redefining what constitutes gaming, potentially excluding sports betting and other forms of gambling traditionally regulated at the state level. Industry stakeholders and advocacy groups have submitted comments challenging the CFTC’s approach, arguing that the rulemaking process itself is vulnerable to legal challenge.
Ongoing Litigation and Market Uncertainty
More than 20 lawsuits are currently active between state gaming regulators, tribal organizations, prediction market operators, and the CFTC. In Nevada, regulators are seeking to enforce a preliminary injunction against Kalshi, alleging noncompliance and demanding significant daily penalties. The legal landscape remains unsettled, with both sides preparing for potential escalation to the U.S. Supreme Court. While some industry observers believe state and tribal regulators have a strong case, the outcome remains uncertain as the CFTC and prediction market platforms continue to pursue new legal and regulatory strategies to secure their business models ahead of future political changes.
Event contracts, the core product of prediction markets, are agreements that pay out based on the outcome of a specific event, such as a sports game or election. Unlike traditional sports bets, these contracts are regulated at the federal level by the CFTC when offered on designated contract markets, but state and tribal authorities maintain jurisdiction over gambling within their borders. The distinction between event contracts and gambling wagers is central to ongoing legal disputes, as regulators and courts determine where the line should be drawn and which authority should prevail.
