State lawmakers and gaming regulators across the US are escalating their fight against prediction markets, arguing that the fast-growing platforms are “basically gambling but with another name”.
At least 20 federal lawsuits have been filed nationwide, disputing whether companies such as Kalshi and Polymarket should be treated as federally regulated financial exchanges, as they maintain, or as gambling operations that should be regulated like state-licensed sportsbooks.
The row escalated this week, when the chair of the US Commodity Futures Trading Commission (CFTC), which oversees these platforms, announced that it was filing a friend-of-the-court brief in defense of “its exclusive jurisdiction over these derivative markets’”.
The legal battle comes as the sector surges. More than $1bn was traded on Kalshi alone during Super Bowl Sunday, and Bloomberg reported that Kalshi’s January trading volume reached nearly $10bn, most of it tied to sports. In recent months, established sportsbook operators, including DraftKings, FanDuel and Fanatics, have also launched their own prediction platforms.
Prediction markets let users trade on the outcome of virtually anything, ranging from sports and elections to award shows, speeches and even what someone might wear. Unlike casinos or traditional sportsbooks, users in effect bet, or “trade”, against one another rather than against an established “house”, with platforms collecting transaction fees.
Because they classify their offerings as “event derivatives” they fall under federal commodities law and are currently overseen by the CFTCrather than under state gaming regulators, making them available in all 50 states to users 18 and older. By contrast, licensed sportsbooks can only operate where sports betting has been legalized.
Since the supreme court lifted the federal sports betting ban in 2018, 39 states and Washington DC have legalized it and licensed operators in those states are taxed and must comply with consumer-protection rules, including age limits (typically 21 and older), responsible gaming mandates and integrity monitoring and audits.
“If you’re a sportsbook operator in Nevada, for example, there’s a lot you have to do to comply with regulations here and minimum internal control standards,” Gregory Gemignani, a gaming law lawyer and professor at the University of Nevada, Las Vegas, said. “The prediction markets have none of that.”
“What’s happened is the lines between gambling and investing have been blurred,” added John Holden, a business law professor at Indiana University who focuses on sports and gaming law. “Eventually this is going to come to a head.”
Resistance from states has intensified as attorneys general, state gaming commissions and tribal regulators move to curb prediction markets. They have issued cease-and-desist letters and filed lawsuits arguing the platforms amount to unlicensed sports wagering that evades state gambling laws and taxes. With cases mounting nationwide, legal scholars say the dispute could ultimately reach the supreme court.
Under federal law, event contracts involving “gaming” are prohibited. The companies maintain that their offerings are lawful “futures” traded on regulated financial trading exchanges. A Kalshi spokesperson said the company believes “consistent, national oversight is better for consumers than a patchwork of inconsistent state laws”.
In October, New York’s gaming commission ordered Kalshi to stop “illegally operating, advertising, promoting, administering, managing” sports-related contracts. Kalshi sued within days, arguing that CFTC oversight pre-empts state authority, and has filed similar challenges in Maryland, New Jersey, Connecticut and Tennessee.
Ahead of the Super Bowl, New York’s attorney general, Letitia James, issued a “consumer alert” warning of the “risks posed by prediction markets”, calling them “online platforms offering bets masquerading as ‘event contracts’”.
As the legal battle escalates, the companies have embraced splashy promotions in the state. Kalshi offered New York shoppers $50 toward groceries, while this week, Polymarket announced a five-day “free grocery store” – widely seen as a nod to the New York City mayor Zohran Mamdani’s proposal for city-run supermarkets.
Mamdani responded with a meme: “Heartbreaking: The Worst Person You Know Just Made A Great Point.”
So far, several states have secured courtroom wins. In Massachusetts, the attorney general obtained a preliminary injunction temporarily barring Kalshi from offering sports contracts without a state license. Polymarket then sued the state, arguing that only the CFTC can regulate contract markets.
In November, a federal judge in Nevada blocked Kalshi’s sports offerings in the state. The company is appealing to the ninth circuit. Separately, a Nevada court has also temporarily barred Polymarket from offering event-based betting there.
Both companies insist they are futures exchanges, not gambling operators, and that only the CFTC can regulate contract markets.
“As other courts have recognized, Kalshi is a regulated, nationwide exchange for real-world events, and it is subject to exclusive federal jurisdiction,” a Kalshi spokesperson said. “It’s very different from what state-regulated sportsbooks and casinos offer their customers. We are confident in our legal arguments.”
On Friday, 23 Democratic US senators wrote to the CFTC asking it to stay out of the state legal battles and to bar gaming contracts and those involving “war, terrorism, assassination, or other enumerated activities”.
Several legal scholars, including Karl Lockhart, a law professor at DePaul University, said that the mounting litigation may push the issue to the supreme court.
“Eventually there’s enough cases going on, the issue is nationwide, there’s going to be differences of opinion between the circuits, which is the ideal set-up for a supreme court decision,” said Lockhart. “If these cases make it to the supreme court, I don’t know what they’ll do. It’s an interesting case. It doesn’t fit neatly into political bubbles, one way or the other.”
Meanwhile, some state lawmakers are advancing bills targeting these platforms. In Connecticut, the governor has proposed banning participation by those under 21, and legislation has been introduced in Illinois that would prohibit sports-related offerings.
In Hawaii, where gambling remains illegal, legislators are advancing a measure to bar online platforms from offering contracts tied to real-world outcomes.
Scot Matayoshi, the Hawaii state representative who introduced the measure, said the offerings were “basically gambling but with another name and through a loophole”.
He also raised insider trading concerns, noting that they saw almost half a million dollars in bets for what words the Hawaii governor would say in his state of the state address.
“There were advanced copies circulated, so people knew exactly what he was going to say and could have placed bets,” he said. “This particular type of gambling really opens the door for insider trading.”
Polymarket made headlines earlier this year, after bettors reportedly profited by predicting the capture of Venezuela’s president, Nicolás Maduro, before Donald Trump’s announcement.
The platforms say they monitor for such risks. Ahead of this year’s Super Bowl, Kalshi said it expanded its surveillance and enforcement efforts to detect and remove accounts engaging in insider trading and market manipulation. Its CEO, Tarek Mansour, said the company conducted more than 200 investigations in the past year, froze accounts and referred cases to law enforcement.
“Our insider trading rules are adapted from the rules on NYSE and Nasdaq: if you have material non-public information on a market, you cannot trade it and if you do, you are committing a financial crime,” Mansour has said. “This applies to government employees, policymakers, executives, or anyone who holds information that is legally not meant to be public.”
Under the Biden administration, the CFTC pursued actions against prediction market platforms, and sought to bar them from offering election event contracts related to politics and sports.
Since Trump’s return to office, the tone has shifted. The CFTC’s new chair, Michael Selig, has signaled support for the “responsible development” of event contracts and withdrawn proposals that would have limited political and sports event offerings.
And just last week, the CFTC unveiled a new “innovation advisory committee” composed of the CEOs from companies including prediction markets such as Kalshi and Polymarket, crypto firms such as Coinbase, and major gambling operators including FanDuel.
On Tuesday, in a video announcement posted to social media, Selig announced that the CFTC had filed a friend-of-the-court brief to defend its jurisdiction over prediction market platforms in the ninth circuit court of appeals, supporting trading app Crypo.com.
“Over the past year, American prediction markets have been hit with an onslaught of state-led litigation,” he said. “In response, the CFTC has today filed a friend-of-the-court brief to defend its exclusive jurisdiction over these derivative markets.’”
In a op-ed in the Wall Street Journal on Monday, Selig added: “The CFTC will no longer sit idly by while overzealous state governments undermine the agency’s exclusive jurisdiction over these markets by seeking to establish statewide prohibitions on these exciting products.”
Barron’s also reported that, as of last week, there were no enforcement attorneys remaining at the CFTC’s flagship office in Chicago.
The debate around prediction markets has also reached Washington, where lawmakers have the authority to amend the Commodity Exchange Act.
In September, Catherine Cortez Masto, a Democratic senator from Nevada, along with the Republican senator John Curtis and several others, urged the CFTC to “not override state and tribal law” by “allowing sports betting in all 50 states by permitting some companies to categorize their sports betting activities as ‘event contracts’”.
The New York representative Ritchie Torres has introduced draft legislation designed to curb the risk of insider trading among federal officials and their staff. And earlier this week, the Nevada representative Dina Titus proposed amending the Commodity Exchange Act to bar registered entities from “engaging in transactions involving sporting event or casino-style gaming contracts”.
“Prediction markets should not be able to circumvent state gaming laws,” Titus said.
A Kalshi spokesperson told the Guardian that they support Torres’s bill.
Sports leagues and gambling industry groups have also urged to the CFTC to impose a regulatory framework for these prediction markets, comparable to those imposed on state-licensed sportsbooks.
The American Gaming Association (AGA), a gambling industry lobby group, and the Indian Gaming Association, recently urged Congress to address what they call “unregulated sports event contracts being offered by prediction markets”, which they argue “are indistinguishable from legal sports betting”.
Chris Cylke, the senior vice-president for government relations at the AGA, told the Guardian: “This is fundamentally about state and tribal sovereignty and their ability to regulate their gambling marketplaces and to just oversee their own jurisdictions.”
Polymarket did not respond to requests for comment. In a statement, the CFTC said that while “complex interpretive questions about the classification of certain products may be better left to the courts”, Selig had “always stood by the CFTC’s exclusive authority to regulate the marketplace for those products”.
Beyond the legal fight, problem gambling advocates warn of broader risks. The National Council on Problem Gambling has urged the CFTC to adopt rules that prioritize players’ health, arguing that sports-related event contracts pose similar risks to traditional wagering.
Cole Wogoman, the council’s director of government affairs and league partnerships, said: “There are great legal minds who are going to debate whether this falls into a definition of legally gambling, but from our point of view, that doesn’t really matter. Folks are interacting and treating this as gambling.”
The council, he said, was focused on trying to “get this space” to have “the same protections and regulations that you’d see at the state or with tribal gaming”, he said. On Monday, the council called for the platforms to display the national gambling helpline.
A Kalshi spokesperson pointed the Guardian to their newly added responsible trading hub, which it said had “protections comparable to those that sportsbooks and casinos offer”.
Clinicians are also watching closely. Timothy Fong, an addiction psychiatrist and gambling researcher at UCLA, said more patients were using the platforms, and were often describing themselves as “investors” rather than “gamblers”.
“Ideally in my world, we would have these products regulated by the people that know how to handle gambling,” he said.
The broader question, Fong said, was: “What does it mean to us as a society to speculate and put financial terms on every single human event?
“It commoditizes everything,” he replied. “And when you do that, it dehumanizes things.”
First Appeared on
Source link
Leave feedback about this