A bipartisan coalition of 41 Attorneys General, led by Maryland Attorney General Anthony Brown, has formally called upon the Commodity Futures Trading Commission (CFTC) to acknowledge and respect state-level authority over sports-related prediction markets. In a joint letter, the coalition argues that the federal regulator’s current trajectory could inadvertently undermine decades of established state gambling laws and consumer protection frameworks.
The move comes as platforms like Kalshi and Polymarket gain mainstream traction, offering “event contracts” that often mirror traditional sports betting or election wagering, activities that have historically been the sole province of state regulators.
The Jurisdictional Tug-of-War: States vs. Federal Oversight
The core of the Attorneys General’s argument is that prediction markets, which allow users to trade on the outcome of real-world events, are frequently indistinguishable from gambling. By classifying these activities as “commodity contracts”, the coalition fears the CFTC is creating a regulatory loophole that allows operators to bypass strict state licensing, tax obligations, and responsible gaming requirements.
“The states are best positioned to regulate wagering within their borders,” the coalition noted, emphasising that a “one-size-fits-all” federal approach fails to account for the diverse legal landscapes across the U.S. This tension is heightened by the recent CFTC prediction market enforcement philosophy shared by Chairman Selig, who reaffirmed the Commission’s commitment to overseeing this “new frontier of finance”. While Selig argues for a federal “minimum effective dose” of oversight to protect market integrity, the 41 Attorneys General contend that any federal preemption of state gambling laws creates a dangerous vacuum that undermines local consumer protections.
The Kalshi Precedent and “Election Betting”
A primary driver for this unified front is the ongoing legal volatility surrounding Kalshi, a platform that has sought to offer contracts on U.S. elections and sports outcomes. While the Attorneys General focus their letter on the need for the CFTC to respect state law, the urgency is underscored by the Massachusetts Supreme Court Kalshi betting litigation, which serves as a landmark case in the struggle to reconcile federal “market” designations with state “gaming” definitions.
The coalition’s letter highlights several critical concerns regarding this regulatory overlap:
- Consumer Protection: States have robust systems for dispute resolution and self-exclusion that federal commodity regulations currently lack.
- Integrity of Elections: Several Attorneys General expressed alarm that federal approval of “election markets” could incentivise interference or spread misinformation regarding democratic processes.
- Market Cannibalisation: There is growing concern that unregulated prediction markets could syphon revenue away from state-licensed sportsbooks, which contribute millions to state tax coffers.
Why 41 Attorneys General Fear Prediction Markets Threaten State Gambling Laws
The sheer size of the coalition, representing 41 different jurisdictions, signals that this is not a partisan issue but a fundamental question of states’ rights. Attorney General Brown emphasised that while the CFTC has a role in regulating legitimate financial commodities, “sports and elections are not commodities”.
The coalition is urging the CFTC to adopt a new rule that explicitly prohibits the listing of event contracts that involve “gaming” or any activity that is illegal under the laws of the state where the participant is located. This would effectively force prediction market operators to seek state-by-state approval, similar to the model used by mobile sports betting operators like DraftKings or FanDuel. The coalition letter says,
Any distinction between sportsbook bets and prediction-market bets is illusory. On so-called ‘prediction markets’, users can make all the same wagers they can make at a traditional sportsbook.
The CFTC should recognise the limits of its power and affirm that states have the expertise, experience and tools to regulate sports betting as they have for more than a century.
Navigating the New Event Contract Crisis
The CFTC is currently in a public comment period regarding the regulation of event contracts. The intervention of nearly every major U.S. state legal officer puts immense pressure on the Commission to refine its definitions.
If the CFTC ignores the coalition’s request, legal experts predict a wave of state-led lawsuits aimed at blocking prediction market platforms from operating within specific borders. As the 2026 election cycle approaches, the urgency to define where “trading” ends and “wagering” begins has never been higher for U.S. regulators.