In the U.S., the Commodity Futures Trading Commission (CFTC) filed lawsuits against the states of Arizona, Connecticut, and Illinois, in coordination with the United States Department of Justice. The stated goal is to prevent those states from applying their gambling laws to Designated Contract Markets, i.e., prediction market platforms that already operate under federal regulation.
Read more France pressures the gambling industry: ANJ demands concrete results against gambling addiction
Although the lawsuits have a limited legal scope, their potential impact is broad: they seek to definitively establish that regulatory authority over these products belongs to the federal government and not the states.
What the three states did that prompted the lawsuits in the U.S.
Each of the states involved acted differently, although the result was the same: interference in the operation of platforms authorized by the CFTC.
Arizona was the most extreme case: its regulators issued cease and desist letters and subsequently filed criminal charges against a Designated Contract Market with a current federal registration. Connecticut and Illinois, for their part, resorted to administrative orders to cancel contracts linked to sporting events, arguing violations of their local sports betting regulatory frameworks.
In contrast, Tennessee and New Jersey took a different stance, and the Kalshi platform managed to obtain judicial support in both states, highlighting the lack of uniformity in the treatment of these types of products at the state level.
The core of the conflict: financial instruments or gambling?
The underlying dispute revolves around a seemingly simple question: what are contracts linked to future events? The CFTC treats them as financial instruments regulated by the Commodity Exchange Act. Several states, on the other hand, interpret them as a form of gambling and seek to subject them to their gambling regulatory frameworks.
The CFTC argues that allowing each state to apply its own regulations would create a confusing regulatory mosaic, with inconsistent rules and unequal protections for users. According to the agency, this fragmentation weakens, rather than strengthens, market oversight.
Chairman Selig also recalled that Congress expressly rejected that decentralized model in the past, precisely because it led to less consumer protection and a greater risk of fraud and manipulation.
Read more Macao defies the market: solid revenues contrast with falling shares in 2026
The CFTC’s historical position in this market
The commission’s involvement in event-linked contracts is not new. Its background dates back to 1992, with the Iowa Electronic Markets academic project. However, it was after the 2008 financial crisis that Congress significantly expanded the definition of commodities, opening the door to the modern development of federally regulated prediction markets.
In early 2025, Chairman Selig ordered the withdrawal of a 2024 proposal that would have banned contracts for political and sporting events. In March of that same year, the CFTC issued an Advance Notice of Proposed Rulemaking to define how these markets should operate under federal law, a process that will cover issues such as margin trading for retail investors, safeguards against insider trading, and limits on contracts related to topics prohibited by current regulations.
What could happen from now on according to experts
Attorney and gambling analyst Daniel Wallach warned that the lawsuit against Illinois, filed over a cease and desist letter issued more than a year ago, could be a sign that the federal government is willing to take similar actions against other states attempting to regulate these markets on their own.
Wallach also noted that the escalation could affect the ongoing rulemaking process on sports event contracts, especially if courts determine that Congress never intended for the CFTC to regulate markets with characteristics similar to traditional sports betting.
An expanding market seeking to define its rules
The lawsuits filed by the CFTC mark a turning point in the regulation of prediction markets in the United States. The dispute is no longer just about a specific product, but about the regulatory architecture that supports it and, ultimately, whether the federal model is robust enough to prevail over the fragmentation promoted by the states.
The outcome of these litigations will define the rules of the game for platforms like Kalshi and Polymarket, and will determine to what extent states can intervene in markets that the federal government considers to be within its exclusive jurisdiction.
Read more Blackjack in California 2026: new regulations spark lawsuits and fiscal emergency in cardrooms
