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

Kalshi operates a designated contract market licensed by the Commodity Futures Trading Commission, allowing users to trade event contracts tied to sports, elections and other outcomes. The central dispute is whether sports contracts qualify as swaps under the Commodity Exchange Act and therefore fall under exclusive CFTC oversight, or amount to online gambling subject to state licensing. The outcome could reshape a multibillion-dollar industry that includes Kalshi, Polymarket and other fast-growing platforms.

On Aug. 28, 2026, the Ninth U.S. Circuit Court of Appeals ruled 3-0 that Kalshi was unlikely to show federal law preempted Nevada’s gambling regulations, upholding the dissolution of an injunction protecting its sports contracts. The decision conflicts with an April 6 ruling by the Third Circuit, which voted 2-1 to shield Kalshi from New Jersey enforcement. New Jersey faced a Sept. 3 deadline to seek Supreme Court review, while the new circuit split increased the likelihood that the justices will ultimately settle the jurisdictional dispute.

Kalshi operates a designated contract market regulated by the Commodity Futures Trading Commission and argues that its event contracts are federally supervised derivatives rather than wagers subject to state licensing. The dispute tests where financial regulation ends and gambling oversight begins, with major implications for prediction-market operators, state consumer-protection regimes and the CFTC’s claim to exclusive jurisdiction under the Commodity Exchange Act.

On Aug. 28, 2026, a unanimous three-judge panel of the U.S. Court of Appeals for the Ninth Circuit held that Kalshi had not shown the Commodity Exchange Act was likely to preempt Nevada gaming laws. The court affirmed the dissolution of an injunction covering sports-event contracts and sent questions involving election contracts back to the district court. No monetary damages were awarded. The decision conflicts with the Third Circuit’s approach, prompting the CFTC to signal a potential Supreme Court fight.

Prediction markets allow users to trade contracts tied to elections, policy decisions and economic outcomes. They generally fall under federal derivatives oversight by the Commodity Futures Trading Commission, but states may still invoke their gambling laws. The jurisdictional clash matters because federal registration has not conclusively pre-empted state enforcement, leaving platforms without a guaranteed right to operate nationwide or immunity from state-level legal action.

Federal courts have recently divided over challenges involving prediction-market operators, deepening uncertainty about whether their federal status shields them across the United States. More than 20 related bills have been introduced in Congress without substantive legislation advancing. The Senate, however, unanimously approved a measure barring senators and staff from trading on prediction markets, widening the dispute from federal-state jurisdiction into congressional ethics and political oversight.

Kalshi is a CFTC-registered designated contract market that lets users trade event contracts tied to sports, elections and other outcomes. Its legal strategy rests on federal pre-emption: the company argues the Commodity Exchange Act gives the Commodity Futures Trading Commission exclusive authority over its exchange, while states contend much of the activity is gambling subject to local licensing and consumer-protection laws. The outcome will determine whether prediction markets can operate under one national framework or face a state-by-state patchwork.

On Aug. 13, King County Superior Court Judge John McHale ordered Kalshi to block Washington users from most contracts, requiring initial IP and residency geofencing by Aug. 19 and a multi-source system by Sept. 2. Kalshi sought reconsideration on Aug. 20, citing Washington’s decision not to enforce equivalent restrictions against Crypto.com pending appeal. Separately, 44 state attorneys general challenged the CFTC’s 267-page proposed rule after comments closed July 27. The CFTC invoked emergency authority on Aug. 11 to keep Kalshi operating amid New York’s July 31 suit, which seeks more than $36 billion in damages.

Kalshi operates a CFTC-designated contract market where users trade event contracts tied to sports, politics and other outcomes. The company says those products are derivatives governed by the federal Commodity Exchange Act, while New York treats its sports contracts as unlicensed gambling subject to state safeguards, taxes and age limits. The dispute has become a direct test of whether the Commodity Futures Trading Commission’s asserted exclusive jurisdiction over national derivatives markets preempts state gambling enforcement.

On Aug. 11, 2026, the CFTC invoked emergency authority after KalshiEX notified it of a “market emergency,” ordering the exchange to keep operating in line with the Commodity Exchange Act’s Core Principles. New York Attorney General Letitia James had sued on July 31, seeking a temporary restraining order barring Kalshi from offering all event contracts nationwide and more than $36 billion in damages. The action marked the agency’s first use of such emergency powers since 1980 and sharply escalated the federal-state jurisdictional fight.

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.

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.

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.