CFTC Sues Wisconsin to Defend Federal Primacy Over Prediction Markets

Kalshi lets customers trade event contracts tied to sports, elections and other outcomes and operates as a designated contract market overseen by the U.S. Commodity Futures Trading Commission. The dispute turns on whether those contracts are federally regulated derivatives or wagers that states may police under gambling laws. The answer matters beyond one platform: a federal win could preserve a national rulebook, while a state win could force prediction markets to obtain local gaming licenses, pay state taxes and follow consumer-protection rules in every jurisdiction.

New York Governor Kathy Hochul and Attorney General Letitia James sued Kalshi in state Supreme Court in Manhattan on July 31, 2026, accusing it of running an unlicensed gambling operation. The state seeks to halt the business, pay restitution, confiscate all allegedly illegal gains and impose fines equal to three times those gains; no fixed dollar amount was disclosed. The CFTC, which sued New York in federal court on April 24, is pressing emergency relief, arguing the Commodity Exchange Act gives it exclusive jurisdiction and preempts state enforcement against federally registered markets.

Prediction markets let traders take positions on outcomes ranging from sports contests to elections. Their rapid expansion has put the Commodity Futures Trading Commission at the center of a jurisdictional fight over whether event contracts are federally regulated derivatives or gambling subject to state oversight. For CFTC-regulated designated contract markets, self-certification can speed listings, but exchanges must still show that each product complies with the Commodity Exchange Act, settlement rules and core principles.

The CFTC’s Division of Market Oversight issued its latest advisory on July 24, warning platforms including Kalshi, Coinbase, Polymarket and Crypto.com against broad, template-style filings that combine many contract permutations. Each proposed variation must include its terms, underlying commodity, settlement methodology, data sources and compliance analysis under Regulation 40.2, the agency said. The notice was the regulator’s second warning in several months, following guidance on March 12, though closely related contracts may still be certified as a class.

Prediction markets allow users to trade contracts tied to the outcomes of elections, sporting contests and other events. The U.S. Commodity Futures Trading Commission argues that such contracts fall under federal regulation of commodity derivatives. Kentucky has taken action against operators under state law, including imposing an additional 14% tax, triggering a jurisdictional dispute between federal and state authorities.

As of July 19, 2026, the CFTC had sued Kentucky to block the state's legal proceedings against five prediction-market operators. The CFTC chair said the agency would defend the federal government's exclusive jurisdiction over prediction markets. Kentucky has become the ninth U.S. state to clash with the CFTC over the issue.

Prediction markets allow participants to trade event contracts tied to outcomes such as elections and economic data, but sensitive subjects including war and gambling have long occupied a gray area between derivatives oversight and gambling laws. Uniform review standards from the U.S. Commodity Futures Trading Commission could affect the compliant operation of Polymarket and Kalshi in the United States.

The CFTC issued a staff advisory on prediction markets on June 10 and formally opened a rulemaking and public comment process. Event contracts involving war, gambling and other sensitive categories will be reviewed case by case. Chairman Mike Selig said the era of operating without clear rules was over, as the agency shifts its policy focus from litigation to rules established in advance. The document did not address trading amounts or penalties.

Prediction markets allow traders to buy and sell event contracts tied to outcomes such as elections and sporting contests. The U.S. Commodity Futures Trading Commission, citing the Commodity Exchange Act, treats them as derivatives under its exclusive jurisdiction. The dispute centers on states continuing to pursue platforms such as Polymarket and Crypto.com under gambling laws, with federal preemption determining whether operators face uniform nationwide rules or a patchwork of state regulations.

On May 26, 2026, Donald Trump said on Truth Social that preserving the CFTC's exclusive jurisdiction over prediction markets was critical. The same day, a new CFTC rule was submitted to the White House Office of Management and Budget for review. On June 10, the CFTC released a proposal to amend Rule 40.11 and establish a 90-day review process for contracts involving war, terrorist attacks, assassinations and gambling. The proposal is a regulatory rule, and no financial amount was disclosed.

Prediction markets allow users to trade event contracts tied to elections, sports and weather. Operators such as Kalshi argue that these products are derivatives regulated by the U.S. Commodity Futures Trading Commission, while states regard them as gambling. Minnesota became the first state to impose an explicit blanket ban, raising the central question of whether the federal Commodity Exchange Act preempts state criminal and gambling laws.

Governor Tim Walz signed SF 4760 on May 18, 2026, banning the creation, operation, facilitation or advertising of prediction markets. Violations are punishable by up to five years in prison and a $10,000 fine, and the law takes effect on August 1. The CFTC sued within hours on May 19, arguing that event contracts fall under exclusive federal jurisdiction and seeking a preliminary injunction to block state enforcement.

Prediction markets use “event contracts” that allow users to trade on outcomes including sports and elections. The Commodity Futures Trading Commission argues that contracts traded on a CFTC-registered designated contract market fall under the exclusive federal jurisdiction of the Commodity Exchange Act. New York considers them gambling. The dispute will determine whether states may also use gaming laws to restrict nationwide platforms, with at least eight markets and more than 3,000 contracts at stake.

On April 21, 2026, the New York Attorney General’s Office sued Coinbase and Gemini, alleging that they operated without state licenses and allowed users aged 18 to 20 to participate, below the state’s minimum age of 21. No fixed damages were disclosed; the state also seeks disgorgement of illegal profits and treble penalties. On April 24, the CFTC sued in the U.S. District Court for the Southern District of New York, seeking a declaration of federal preemption and an order barring state enforcement. Together with its April 2 lawsuit against Arizona and two other states, the action expands the dispute to four states.

Prediction markets allow users to trade “event contracts” tied to the outcomes of contests. Operators including Kalshi argue that such derivatives fall under the exclusive oversight of the U.S. Commodity Futures Trading Commission (CFTC), but Wisconsin considers them sports betting subject to state law. The case therefore raises questions about the boundary between federal and state regulatory authority.

The Wisconsin Department of Justice sued Kalshi, Robinhood, Coinbase, Polymarket and Crypto.com in Dane County court on April 23, 2026, seeking to halt sales of sports event contracts. The complaint alleged that sports contracts generate about 90% of Kalshi’s fee revenue, equivalent to roughly $1.3 billion on an annualized basis. On April 28, the CFTC countersued the state, asserting exclusive federal jurisdiction.

Prediction markets allow users to trade on the outcomes of political, sporting and other events, with trading volumes reaching billions of dollars. The U.S. Commodity Futures Trading Commission argues that event contracts traded on designated contract markets are “swaps” governed by the Commodity Exchange Act, preempting separate state regulation under gambling laws. The dispute will determine whether platforms such as Kalshi and Polymarket can operate nationwide.

Represented by the U.S. Department of Justice, the CFTC filed separate lawsuits against Illinois, Arizona and Connecticut on April 2, 2026. Since April 1, 2025, the Illinois Gaming Board had issued cease-and-desist orders to three CFTC-registered markets: KalshiEx, Crypto.com and Polymarket. The federal government is asking the courts to affirm the CFTC’s exclusive jurisdiction and permanently bar state enforcement, without seeking monetary damages.