U.S. Prediction Markets Face 20 Lawsuits as Federal and State Regulators Clash

Kalshi offers event contracts as a designated contract market regulated by the US Commodity Futures Trading Commission (CFTC). The central legal question is whether contracts allowing users to trade on outcomes are federally regulated derivatives or sports betting products subject to state oversight. The rulings will determine whether prediction markets can operate nationwide.

In early July 2026, Kalshi failed to secure a Nevada Supreme Court stay of an order blocking trading in the state, while a Michigan court issued a separate two-week temporary restraining order. The company also sued Ohio regulators and mounted a legal defense in Minnesota. North Carolina’s proposed budget would impose a 6% tax on related revenue, while Kalshi’s deadline to appeal in New Jersey was extended to August 4.

Kalshi is a prediction-market platform regulated by the U.S. Commodity Futures Trading Commission (CFTC) that allows users to trade contracts based on sporting-event outcomes. Illinois has subjected such products to state sports-betting restrictions, sparking a dispute over whether federal derivatives oversight preempts state intervention. The outcome could also affect how prediction markets operate across states.

Kalshi recently sued Illinois officials to challenge a provision in the state's newly enacted budget bill that is scheduled to take effect on July 1. The company argues that restrictions on sporting-event contracts encroach on the CFTC's exclusive regulatory authority. It is seeking to block enforcement, saying the provision would immediately restrict its products and cause irreparable harm that monetary damages could not adequately remedy.

Prediction markets turn events such as sports outcomes into tradable event contracts. KalshiEX LLC is a designated contract market approved by the U.S. Commodity Futures Trading Commission. The dispute centers on whether the Commodity Exchange Act preempts state gambling laws. The CFTC argues that derivatives markets require uniform federal oversight, while New Mexico considers the contracts a form of online sports betting requiring a state license. The ruling could shape the boundaries of state enforcement and platform operations.

New Mexico’s attorney general sued Kalshi on June 4, 2026, alleging that the platform operated without a state license and allowed users aged 18 and older to participate, including people below the state’s minimum gambling age of 21. The case was moved to federal court on June 8. The CFTC filed a separate lawsuit against the state government on June 12, seeking confirmation of federal preemption and preliminary and permanent injunctions. New Mexico is the eighth state targeted by a CFTC lawsuit over enforcement, and the complaint did not seek a specific amount in damages.

Prediction markets use binary “event contracts” to trade on future outcomes, paying $1 per share if an event occurs and nothing if it does not. Prices are also viewed as implied probabilities. Anything from elections and sports to water breaks and handshakes during speeches can become a tradable event. Trading volume in one Polymarket market on the length of the State of the Union address has approached $1 million, highlighting both the information-aggregation potential of such markets and concerns that they amount to gambling.

The U.S. Commodity Futures Trading Commission launched an advance notice of proposed rulemaking on March 12, with the initial comment period closing April 30. On June 10, it separately proposed amending Regulation 40.11 to subject contracts involving sports, war, terrorism and other matters to case-by-case public-interest reviews lasting up to 90 days, with comments due July 27. The CFTC also sued a Google employee on May 27, alleging that the employee made about $1.2 million through insider trading.

Kalshi structures outcomes in sports, elections and other areas as event contracts and operates as a designated contract market regulated by the U.S. Commodity Futures Trading Commission (CFTC). Minnesota, however, considers the activity gambling subject to state law. The dispute centers on whether the Commodity Exchange Act grants exclusive federal jurisdiction that preempts the state ban under the U.S. Constitution’s Supremacy Clause. The outcome could reshape regulatory boundaries nationwide.

Governor Tim Walz signed SF 4760 on May 18, 2026, before replacing it with SF 3432 on May 26. Effective August 1, the law makes operating, facilitating or advertising prediction markets a felony. The CFTC sued on May 19 and sought an injunction, followed by Kalshi on May 27. Kalshi also argued that the advertising restrictions violate the First Amendment. The litigation is expected to continue through appeals and could ultimately be decided by the U.S. Supreme Court.

U.S. prediction markets allow traders to wager on the outcomes of elections, economic developments and sporting events. They are primarily overseen by the Commodity Futures Trading Commission under federal commodities law, but states argue that sports-related contracts resemble gambling and should be subject to state gaming regulations. The division of authority will directly affect platform access, consumer protection and market expansion.

The U.S. Senate Commerce Committee recently held a hearing on the regulatory framework. Lawmakers examined whether the CFTC should serve as the sole regulator or states should retain enforcement authority, while questioning the CFTC's experience overseeing markets resembling sports betting. Available information does not disclose the hearing's exact date or any related monetary figures, but the session could lay the groundwork for further congressional legislation governing the industry.

Kalshi is a designated contract market regulated by the U.S. Commodity Futures Trading Commission (CFTC) that offers event contracts tied to outcomes including sports results. The Ohio Casino Control Commission considers such products to be sports betting that requires a license, prompting Kalshi to sue in October 2025. The dispute centers on whether federal derivatives regulation preempts state intervention, and its outcome could also affect platforms such as Polymarket.

On May 12, 2026, the CFTC filed an amicus brief with the U.S. Court of Appeals for the Sixth Circuit supporting Kalshi’s challenge to a federal district court’s March 2026 denial of an injunction. The CFTC called Ohio’s action a “jurisdictional overreach” and asked the court to affirm its exclusive authority over event contracts offered on designated contract markets. The filing marks the agency’s second intervention in a similar case, following its support for Crypto.com in the Ninth Circuit in February.

Event contracts allow investors to wager money on outcomes such as elections or sporting events. Kalshi, Robinhood and others argue that the contracts are derivatives under the Commodity Exchange Act and fall under the exclusive jurisdiction of the US Commodity Futures Trading Commission. States consider them unlicensed gambling. How courts draw the regulatory boundary will determine whether the platforms can operate across state lines.

On April 2, 2026, the CFTC filed separate lawsuits against Arizona, Connecticut and Illinois, asking the courts to declare that federal law preempts state gambling laws and to permanently bar state enforcement. It did not seek monetary damages. All three states had issued cease-and-desist orders, while Arizona also filed criminal charges. A federal court stayed Arizona’s prosecution on April 10.

Kalshi is a designated contract market regulated by the US Commodity Futures Trading Commission, allowing users to trade event contracts tied to outcomes including sports results. Each contract settles at a maximum of $1. New Jersey's Division of Gaming Enforcement classified the activity as unlicensed sports betting, raising the question of whether federal derivatives regulation preempts state law.

On April 6, 2026, the US Court of Appeals for the Third Circuit voted 2–1 to uphold a preliminary injunction issued on April 28, 2025. The court found that sports event contracts are swaps under the Commodity Exchange Act and fall under the CFTC's exclusive jurisdiction. On June 26, the state separately requested an extension until September 4 to file a petition for a writ of certiorari with the Supreme Court.

Kalshi is a prediction-market exchange under the federal oversight of the U.S. Commodity Futures Trading Commission (CFTC), allowing users to trade contracts on the outcomes of political, economic and other events. Its compliance strategy differs from that of crypto-native platform Polymarket, shaping a broader industry debate over whether prediction markets should fall under the federal financial system or be regulated separately by individual states.

The latest data show Kalshi controlling about 89% of the U.S. prediction market, reflecting the lead gained by its regulated trading model. The report did not provide a cutoff date for the data or disclose trading volumes or values. Attention will now turn to the legal and regulatory cases facing Kalshi and Polymarket, as well as the boundary between federal and state jurisdiction.