On April 30, 2026, a multistate coalition of 40 attorneys general and the District of Columbia sent a letter to Commodity Futures Trading Commission (CFTC) Chairman Michael S. Selig, forcefully arguing that sports-related prediction markets should remain under state gambling oversight rather than being classified as federally regulated derivatives. The letter, signed by top law enforcement officers from Ohio, Nevada, New Jersey, New York, Tennessee, and 35 other states, represents the most significant state-level pushback against CFTC expansion into sports betting.
Prediction Markets Are Gambling, Not Derivatives
The attorneys general drew a sharp line between traditional financial derivatives and sports event contracts. They argued that contracts on game winners, point spreads, totals, and individual player statistics “have no meaningful differences” from traditional sportsbook wagers. The letter stated that simply labeling these products as “event contracts” does not change their fundamental nature: bettors risk money on uncertain sports outcomes for potential payouts.
Furthermore, the coalition challenged whether sports contracts qualify as “swaps” under the Commodity Exchange Act. They noted 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 would move a traditional state-regulated activity into CFTC control, the letter warned, undermining more than a century of state expertise in gambling regulation.
Judicial Battles and Federal Preemption
The fight over jurisdiction escalated significantly in 2026. On February 19, a federal court in Tennessee granted Kalshi a preliminary injunction after concluding the exchange was likely to succeed on its argument that its event contracts qualify as swaps. On April 6, the Third Circuit affirmed an injunction against New Jersey, holding that federal preemption likely shields Kalshi from state gambling enforcement. These court victories have raised the stakes for states that want to maintain regulatory authority over sports wagering.
The CFTC also entered the fray in a novel way. In April 2026, federal prosecutors, joined by the CFTC, brought the first-ever insider trading case involving prediction markets. They accused an Army soldier of using nonpublic government information to profit on prediction contracts — a case that underscores the potential for abuse under a federal regime that lacks the specific anti-gambling safeguards states have built.
States Warn of Weakened Consumer Protections
The attorneys general warned that expanded federal oversight could weaken protections built around gambling risks. Their letter cited licensing rules, minimum age limits, voluntary exclusion programs, suspicious activity reporting, and restrictions meant to protect sports integrity. The state framework, they argued, is tailored to address gambling harms such as addiction, financial distress, and improper wagering by insiders or sports participants.
“States have the expertise, experience, and tools to regulate sports betting as they have for more than a century,” the letter declared. By contrast, the CFTC’s regulatory structure is designed for financial markets and does not adequately address compulsive gambling, player integrity issues, or state-specific enforcement needs.
Currently, 38 attorneys general have backed Massachusetts’ lawsuit against Kalshi, which could determine whether state gambling enforcement can survive federal preemption claims. With the Third Circuit already siding with Kalshi on preemption, the stage is set for a potential Supreme Court showdown that will define the future of sports prediction markets in the United States.