Forty-Four States Tell CFTC It Lacks Authority to Regulate Sports Prediction Markets Nationwide
Table of Contents
You might want to know
Is the CFTC legally empowered to treat sports-related event contracts on prediction platforms as federally regulated derivatives?
How will conflicting state rulings and ongoing litigation shape the future of sports prediction markets?
Main Topic
On Monday, a coalition of 44 state attorneys general delivered a pointed message to the Commodity Futures Trading Commission (CFTC): the agency lacks authority to regulate sports-related event contracts traded on prediction market platforms. The communication arrived as the public comment period closed for the CFTC's inaugural proposed rule addressing prediction market regulation, a proposal that places substantial emphasis on exchanges' sports offerings. In their letter, the coalition argued that the proposed rule exceeds the CFTC's statutory authority, raises constitutional concerns, and in its present form would be "arbitrary and capricious." The group — led by the Ohio attorney general — urged the commission to start over and clarify that sports betting and gambling are matters for state law and not for CFTC-designated contract markets.
The dispute has unfolded against a background of rapidly expanding trading volumes on prediction platforms, largely propelled by sports-related contracts. Events such as the 2026 FIFA World Cup significantly increased platform activity, drawing heightened regulatory attention. The CFTC and many prediction platforms maintain that event contracts constitute "swaps," a category of derivatives that falls squarely under federal oversight. By contrast, a plurality of states contend that sports-related contracts resemble sports betting and therefore should remain under state regulatory regimes.
In June the CFTC circulated a first draft of its proposed rule for prediction markets, focusing closely on controversial sports-related contracts and identifying particular contract types that might be barred. The draft includes a working definition of "gaming," which the commission described as activities done for recreation or entertainment, governed by rules, and determined by measurable outcomes tied to skilled performance during the activity. That framing drew immediate pushback from industry participants who see the definition as problematic.
Derivatives marketplace CME Group, for example, told the commission that its definition of "gaming" conflates the sport itself with financial wagering on that sport. In a letter from CME general counsel Jonathan Marcus, the exchange warned that this approach suggests the Commodity Exchange Act would preempt state sports regulations — a conclusion CME calls a striking overreach. CME's stance is complicated by the fact that it operates a CFTC-regulated exchange that serves as the regulated venue for FanDuel's sports prediction offerings, illustrating how some market participants simultaneously worry about federal overreach while participating in federally regulated structures.
Conversely, newer prediction market entrants have urged the CFTC to adopt a definition of "gaming" keyed to the activity itself rather than to the presence of wagering. Rothera, a platform launched in June, told the commission that a definition based on "wagering" or "risking something of value" would be overbroad and capture many legitimate event contracts. In a filing, Rothera's CEO argued that a wagering-centered definition should be rejected precisely because it would sweep in every event contract the commission reviews.
The jurisdictional friction has led to litigation across the country. The CFTC has asserted federal preemption in court, arguing that the Commodity Exchange Act gives it exclusive authority to regulate prediction markets as swaps. The agency is currently defending that position in suits with nine states. Observers widely expect the legal battles could ultimately reach the U.S. Supreme Court, which may deliver a definitive ruling on whether federal or state regimes control sports-related event contracts. Until that time, lower courts continue to issue a patchwork of decisions with differing results.
Recent judicial actions illustrate the split. In late June, a Michigan judge blocked platform Kalshi from offering sports bets within the state. Yet in another instance, a federal judge in Minnesota temporarily blocked a statewide ban on prediction markets from taking effect, underscoring the inconsistent legal landscape that platforms and regulators must navigate. These divergent rulings leave businesses and consumers uncertain about which rules govern market activity from state to state and create operational and compliance challenges for exchanges that operate nationally.
Beyond litigation, the debate implicates broader regulatory and policy questions. If the CFTC's authority is affirmed, prediction markets would likely be subject to federal rules designed for derivatives markets — including oversight of swaps trading, reporting requirements, and exchange governance standards. That framework emphasizes market integrity, counterparty protections, and systemic risk controls, standards historically applied to financial instruments rather than to gambling-style wagers. If states retain control, however, sports-related event contracts would be regulated on the more localized terms that govern betting and gambling in each jurisdiction, with varying consumer-protection regimes, licensing regimes, tax treatments, and enforcement priorities.
Both approaches carry trade-offs. Federal oversight could provide uniformity and harmonized regulation across state lines, potentially easing compliance burdens for platforms operating nationally and reducing jurisdictional uncertainty. State control preserves local sovereignty and enables jurisdictions to tailor rules to public policy preferences and local market conditions. The near-unanimous letter from state attorneys general signals a political and legal pushback against federal expansion into an area many states consider core to their regulatory prerogatives.
The dispute will also shape market behavior. Platforms may alter product offerings, pause or exit certain markets, or implement geographic limits to avoid state enforcement actions while the litigation plays out. Exchanges and intermediaries might change contractual terms, disclaimers, or settlement mechanisms to position their products either inside or outside the CFTC’s asserted regulatory perimeter. Market participants and ancillary service providers will watch court rulings and regulatory guidance closely to decide where to allocate resources and how to structure trading services.
In short, the clash between the CFTC and the coalition of state attorneys general centers on whether sports-related event contracts are interchangeable with federally regulated swaps or instead fall under state authority as wagering. The issue is not purely technical: it involves statutory interpretation, constitutional principles, marketplace realities, and divergent views from exchanges, platforms, and state regulators. For now, the question of who governs sports prediction markets remains contested and likely headed for further legal scrutiny.
Key Insights Table
| Aspect | Description |
|---|---|
| Key Fact | 44 states say the CFTC lacks authority to regulate sports-related event contracts on prediction platforms. |
| Regulatory Claim | The CFTC and some platforms view event contracts as swaps, subject to federal oversight. |
| State Position | States argue sports-related contracts resemble sports betting and should be governed by state law. |
| Industry Views | CME warned the CFTC’s "gaming" definition could preempt state regulation; some platforms favor a narrower, activity-focused definition. |
| Legal Outlook | Multiple lawsuits are pending; the Supreme Court may ultimately decide jurisdictional boundaries. |
Afterwards...
The tug-of-war between federal and state regulators over sports prediction markets is likely to continue for months or years. Pending court decisions and any revised CFTC rulemaking will shape whether uniform federal standards displace state frameworks or whether states maintain regulatory control. Market participants should prepare for a bifurcated legal environment in the near term and plan compliance strategies that can adapt to either outcome. Policymakers, judges, and industry leaders will all play roles in determining whether prediction markets evolve under a derivatives-style regime, remain subject to state gambling laws, or land in a hybrid regulatory space.
As litigation progresses and regulatory proposals are revised, stakeholders should monitor developments closely and contribute to policymaking through comments, filings, and participation in rulemaking processes. The resolution will have implications for consumer protection, market structure, taxation, and the business models of companies that have come to rely on sports-related event contracts for growth.
