A coalition of 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 on April 30, 2026, arguing that sports-related prediction markets should remain under state gambling oversight rather than federal derivatives regulation. The letter marks a significant escalation in the ongoing legal battle over whether platforms like Kalshi offer financial derivatives or unlicensed gambling services.
Core Dispute: Gambling or Financial Derivatives?
The state officials asserted that sports prediction markets are functionally identical to traditional sports betting. Users can wager on game winners, point spreads, totals, and individual player statistics—exactly the same types of bets offered by licensed sportsbooks. The letter states: “Traditional sports bets and sports-related event contracts offered on designated contract markets have no meaningful differences.” The attorneys general argued that labeling these contracts as “prediction markets” does not change their fundamental nature: participants risk money on uncertain sports outcomes in hopes of receiving a payout, which is the very definition of gambling.
Legal experts point to the Commodity Exchange Act, which defines swaps as contracts that involve financial, economic, or commercial consequences. The states argue that game results and player statistics do not create measurable economic exposure suitable for hedging. Expanding federal derivatives law to cover sports betting would shift a traditional state-regulated activity into CFTC control, the letter warned.
Kalshi’s Court Wins and the State Counterattack
Two federal court rulings dramatically changed the landscape in 2026. On February 19, a federal court in Tennessee granted Kalshi a preliminary injunction, finding that its contracts likely 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. These victories prompted a rapid consolidation of state opposition. Currently, 38 attorneys general are backing Massachusetts in its lawsuit against Kalshi, a case that could determine whether states can block prediction markets within their borders and whether the CFTC has the authority to preempt state gambling laws.
Meanwhile, the CFTC joined federal prosecutors in April in a first-of-its-kind insider trading case involving an Army soldier accused of using nonpublic government information to trade on prediction markets. The case underscores the lack of the robust anti-insider and integrity protections that state gambling regulations provide.
States’ Concerns and Arguments
The attorneys general warned that expanded federal oversight would weaken existing protections against gambling-related harms. State gambling regimes include licensing requirements, minimum age restrictions, voluntary exclusion programs, suspicious activity reporting, and measures to protect sports integrity. The letter states: “States have the expertise, experience, and tools to regulate sports betting as they have for more than a century.”
They argued that the CFTC’s framework is designed for financial markets and is ill-equipped to address gambling-specific harms such as addiction, financial distress, and improper wagering by insiders or athletes. 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, Wisconsin, and the District of Columbia.