CFTC Sues State-Level Betting Regulators to Fight for Oversight Lead on Prediction Markets

On Thursday, the U.S. Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ) respectively filed lawsuits against betting regulators in Illinois, Connecticut, and Arizona, accusing them of acting beyond their authority.

At the heart of the core dispute in these cases is the boundary of jurisdiction. The CFTC argues that these three states and their betting regulators have improperly interfered with prediction markets that should fall under federal government oversight.

The incident can be traced back further to 2025, when the betting regulators in these three states issued injunctions against prediction platforms such as Kalshi and Polymarket, ruling that the event contracts offered by these platforms violated state gambling laws and licensing requirements.

Taking Illinois as an example, in its court filings the CFTC directly targets the state Betting Commission, incorrectly classifying event contracts as “bets” or “sports wagers.” This clearly exceeds the statutory authority of state betting regulators and undermines the exclusive federal system designed to oversee swap markets nationwide under the supervision of the Congress.

In all three lawsuits, the CFTC relies on the Commodity Exchange Act (CEA) to claim that it has exclusive jurisdiction over “Designated Contract Markets” (DCMs), which includes prediction platforms such as Kalshi and Polymarket.

The filings also issue a warning that if the courts do not stop it, the defendant states may continue making moves that undermine federal law and the exclusive jurisdiction over which the Congress has granted authority to the CFTC.

In addition to the three states sued above, Arizona, Nevada, Maryland, New Jersey, Montana, Ohio, Tennessee, New York, and Massachusetts have also taken legal action against prediction markets.

At the same time, lawmakers are not standing still—they are working to advance legislative proposals. On one hand, they aim to ban event contracts related to sports; on the other, they aim to prevent political insiders from participating and to block war-related prediction markets.

In sum, on the surface the core of these lawsuits is the question of who controls prediction-market regulation. In reality, it is yet another collision of the power boundaries between the federal government and state governments. The CFTC insists on exclusive jurisdiction, while the states cite local betting laws to push back.

No matter how the court ultimately rules, it will establish a clear regulatory framework for U.S. prediction markets—either unified under federal rules or relegated to a fragmented setup in which each state acts on its own.

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