On April 30, 2026, attorneys general from 40 U.S. states and the District of Columbia sent a letter to Commodity Futures Trading Commission (CFTC) Chairman Michael S. Selig, arguing that sports-related prediction markets should be regulated as gambling, not financial derivatives. The coalition asserts that these contracts function as wagers and belong under state oversight, challenging the CFTC's claim of exclusive authority.
States: Prediction Markets Are Just Gambling
The letter draws a sharp distinction between derivatives markets and sports betting. It notes that users can wager on game winners, point spreads, totals, and individual player statistics — activities that closely mirror traditional sportsbook operations. “Traditional sports bets and sports-related event contracts offered on designated contract markets have no meaningful differences,” the attorneys general wrote. They argued that rebranding a bet does not change its fundamental nature: bettors risk money on uncertain sports outcomes for potential payouts.
Legal Battles Intensify: Kalshi's Federal Court Wins
The jurisdictional conflict escalated significantly in 2026. On February 19, a federal court in Tennessee granted Kalshi a preliminary injunction, concluding that the company was likely to succeed in proving its contracts qualify as swaps under the Commodity Exchange Act. On April 6, the Third Circuit Court of Appeals affirmed an injunction against New Jersey, holding that federal preemption likely shields Kalshi from state gambling enforcement. In a first-of-its-kind case, the CFTC also joined federal prosecutors in April to charge an Army soldier with insider trading using nonpublic government information on prediction markets.
The attorneys general challenged whether sports contracts meet the legal definition of swaps, which must involve events tied to financial, economic, or commercial consequences. Game results and player statistics, they argued, do not create measurable economic exposure that derivatives are designed to hedge. Expanding federal derivatives law to cover sports betting, the letter warned, would shift a traditional state-regulated activity into CFTC control.
38 States Back Massachusetts Lawsuit Against Kalshi
Currently, 38 attorneys general are supporting Massachusetts' lawsuit against Kalshi, a case that could determine whether federal preemption applies to prediction markets. The states warned that expanded CFTC oversight would undermine critical protections built around gambling, including licensing requirements, minimum age limits, voluntary exclusion programs, suspicious activity reporting, and sports integrity safeguards. “States have the expertise, experience, and tools to regulate sports betting as they have for more than a century,” the letter states.
The signatories include 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, Wisconsin, and the District of Columbia.
The outcome of this regulatory battle will have profound implications for the future of prediction markets in the United States. If federal courts ultimately side with the CFTC, prediction markets will face stringent financial regulatory requirements. If states prevail, sports prediction markets will continue to operate under state gambling laws. Investors and market participants are closely watching for upcoming rulings.