Key Takeaways
- States argued sports-related prediction markets function as wagers, not federally regulated derivatives.
- Kalshi court wins have raised the stakes for preemption in state gambling enforcement nationwide.
- Attorneys general warned CFTC oversight could weaken protections for addiction, integrity, and insiders.
States Say Sports Markets Belong Under Gambling Oversight
A multistate coalition sent an April 30, 2026, letter 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 lacks exclusive authority over these contracts because they function as wagers, not swaps or other financial instruments.
The letter draws a sharp line between derivatives markets and sports betting. The states said prediction market users can wager on game winners, point spreads, totals, and individual player statistics, closely matching sportsbook activity. The letter states:
“Traditional sports bets and sports-related event contracts offered on designated contract markets (‘DCMs’) have no meaningful differences.”
The coalition argued that a new label does not change the underlying transaction. Bettors still risk money on uncertain sports outcomes for possible payouts.
Federal Court Fights Raise Stakes for Kalshi Contracts
The attorneys general also challenged whether sports contracts qualify as swaps under the Commodity Exchange Act. They said swaps must involve events tied to financial, economic, or commercial consequences. Game results and player statistics, they argued, do not create the kind of measurable economic exposure that derivatives are designed to hedge. Expanding federal derivatives law to cover sports betting, the letter warned, would move a traditional state-regulated activity into CFTC control.
That fight intensified in 2026. A federal court in Tennessee granted Kalshi a preliminary injunction on Feb. 19 after concluding Kalshi was likely to succeed on arguments that the contracts qualify as swaps under the Commodity Exchange Act. On April 6, the Third Circuit affirmed an injunction against New Jersey, holding that federal preemption likely shields Kalshi from state gambling enforcement. 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.
The states 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 meant to protect sports integrity. The attorneys general said the CFTC’s framework is built for financial markets, not gambling harms such as addiction, financial distress, and improper wagering by insiders or sports 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 attorneys general from 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.
