CFTC and DOJ sue states over prediction markets regulation dispute
Federal regulators have taken Arizona, Illinois, and Connecticut to court, opening a new front in the fight over so-called event contracts and who gets to regulate them. The Commodity Futures Trading Commission, joined by the United States, filed lawsuits in federal district courts seeking to stop those states from enforcing laws that would block these products.
Federal officials argue event contracts fall under their authority when they trade on registered exchanges. State regulators see something else entirely, calling them unlicensed gambling.
The cases seen by ReadWrite stem in part from recent enforcement moves. In Illinois, regulators sent cease-and-desist letters to firms including Kalshi and Robinhood, arguing their sports-related event contracts amount to unlawful wagering without proper state licenses. Connecticut officials made similar claims, saying companies were “conducting unlicensed online gambling” by offering these contracts to residents.
However, CFTC Chairman Michael Selig stated in a press release that the agency would “continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators.
“This is not the first time states have tried to impose inconsistent and contrary obligations on market participants, but Congress specifically rejected such a fragmented patchwork of state regulations because it resulted in poorer consumer protection and increased risk of fraud and manipulation,” he added.
CFTC and DOJ challenge states over prediction markets ban
The federal complaints lean heavily on the Commodity Exchange Act. According to the filings, the law “provides a comprehensive regulatory framework for the regulation of derivatives transactions in the United States” and gives the CFTC “exclusive jurisdiction” over products like futures, options, and swaps listed on regulated exchanges.
Officials argue that event contracts fit squarely within that framework when structured as derivatives. The filings describe them as instruments that “enable parties to trade on their predictions about whether a future event…will occur,” spanning areas like “economics, or elections, or climate, or sports.”
States are pushing back with a different interpretation. Illinois regulators, for example, said it is illegal to run platforms that allow users to “make a wager upon the result of any sport, game, contest, political nomination, appointment, or election…without an [Illinois Gaming Board]-issued license.” Connecticut authorities have taken a similar stance.
The lawsuits also draw on history, pointing out that futures trading was once treated as gambling in some jurisdictions before Congress stepped in to centralize oversight. Lawmakers ultimately handed the CFTC exclusive authority in 1974 to avoid what they warned could become “total chaos” from overlapping rules.
Recent developments have added urgency. The CFTC has been weighing guidance and potential rulemaking around sports-related prediction markets, while also attempting to have a more pragmatic approach in recent advisory discussions. At the same time, legal debates have expanded beyond these states, including outside support for prediction markets in filings tied to Nevada disputes.
A ruling against the federal government might limit the agency’s reach and reinforce state control over anything resembling sports betting. A decision in favor of the CFTC would strengthen a single national framework, and likely clear the way for wider expansion of event-based derivatives.
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