By Emma Kinery
Gongwer News Service
High-stakes legal battles have exploded in nearly half of all American states in recent months as attorneys general, gaming companies and the federal government fight over who has the right to regulate prediction markets.
Prediction markets are overseen by the federal Commodity Futures Trading Commission. The industry favors that sole regulator, rather than a patchwork of regulations in the states — and the Trump administration maintains the CFTC’s authority supersedes state law. But state attorneys general argue the markets operate as de facto gambling platforms, giving them the authority to impose state-level regulations.
The dispute has created a multi-party fight that promises to drag on to the U.S. Supreme Court. In many cases, prediction markets are the ones launching legal campaigns against states that seek to regulate them. The companies and an industry coalition have sued 18 states in federal court and one in state court, in hopes of preempting state-level regulation.
Ten states have sued the companies. The CFTC has sued nine states. Tribal coalitions have initiated three lawsuits in federal courts in California, New Mexico and Wisconsin.
Kalshi, the largest prediction market operator in the United States, has been the most aggressive. The New York-based firm has sued 15 states and is involved in litigation in some capacity in 20 states. In nearly every instance, Kalshi has been the first to sue or to be sued.
In two states, Illinois and Michigan, Coinbase Prediction Markets initiated legal challenges. In Minnesota, the CFTC sued first.
Robinhood and Coinbase, platforms that are in part powered by Kalshi, have sued five states. Polymarket has sued five states and intervened in one case as a plaintiff. Crypto.com sued five and intervened in three as a plaintiff.
The case count for Kalshi, Polymarket and Crypto.com all include the suit brought in Kentucky by the Coalition for Fair Markets, the industry trade group comprised of the three. Both Polymarket and Crypto.com joined the CFTC’s suit in Illinois as an intervenor plaintiff.
The CFTC and prediction market operators argue that their products fall under the definition of “swaps” under the Commodity Exchange Act, which gives the CFTC “exclusive jurisdiction” over the futures trades.
Traditionally, that definition has only been applied to markets for products in the agriculture and energy sectors.
But companies like Kalshi and Polymarket, which are registered as designated contract markets with the CFTC, have expanded the definition to include wagers on events including sports, election outcomes and weather.
“Congress gave the CFTC exclusive jurisdiction to regulate these markets,” Zach Fulton, deputy director for the CFTC’s Office of Public Affairs, told State Affairs. “The CFTC has a statutory obligation to preserve stability in the markets where it has exclusive jurisdiction in the face of these unprecedented actions by some states.”
State regulators disagree. They want prediction markets to follow state gaming laws and pay taxes just as other, more traditional sports betting operators do.
In March 2025, Nevada became the first state to send a cease and desist order to Kalshi. The company responded by suing the Nevada Gaming Control Board three weeks later. Nine more states eventually issued cease and desist orders.
So far, courts have sided largely with the states. Of the 37 court rulings handed down in legal battles between the opposing sides, states have won 31, while prediction market operators have won six. Kalshi has won just four out of the 21 judicial decisions of which it has been a part.
In the most recent major ruling on Aug. 15, a federal judge in Connecticut denied Kalshi’s request for an injunction pending appeal. Kalshi appealed to the U.S. Court of Appeals for the Second Circuit which denied the motion Wednesday.
Courts in Michigan, Nevada and Washington have banned Kalshi from offering certain event contracts within their borders. Judges in Nevada have also barred Coinbase and Polymarket from operating in the state.
Crypto.com and Robinhood agreed to stop operating in Nevada while litigation continues.
Massachusetts in January became the first state to secure a preliminary injunction against Kalshi when a judge ruled in the state’s favor and blocked the platform from operating altogether. The ruling was later appealed, and a judge has allowed Kalshi to operate while the final decision is pending.
Prediction market operators have notched some important wins. In March, the Third Circuit Court of Appeals sided with Kalshi in a split decision barring New Jersey from imposing regulations.
“As the Third Circuit correctly ruled, the CFTC is our regulator, not the states,” Jacki McGavick, a spokesperson for Kalshi, told State Affairs. “We're confident in our legal arguments as this plays out in the remaining courts.”
Eighteen cases have reached the U.S. Circuit Court of Appeals in eight out of the 12 regional circuits.
The legal strategy pursued by prediction markets and the CFTC represents “an attempted federal hostile takeover of the sports gaming industry without so much as a sliver of clear congressional authorization,” said Daniel Wallach, an attorney who specializes in gaming and sports betting who has tracked the cases closely.
“This was offensive to me, both as policymaking as well as someone who had a front row seat,” Wallach said. “What was frivolous in 2018 [when the U.S. Supreme Court legalized sports betting] becomes legally plausible in 2026.”
It is virtually certain that the Supreme Court will have the final say in the litigation. Wallach said the states are building early momentum.
“We’re already 37 decisions into it,” he said. “We’ve had a cross section of federal judges and state judges around the country take a deep dive on this analysis and the momentum is shifting decidedly in favor of the states.”
Wallach said the more recent rulings, which tend to favor states compared to earlier wins which favored prediction market operators, have the benefit of the legal analysis in all of the previous rulings.
“It’s a full comprehensive menu of legal arguments and the courts are now better equipped to pore over these arguments than some of the earlier courts were when rulings were made relatively early on a motion for preliminary injunction several weeks into a case,” Wallach said. “I would equate it to something akin to a complete game shutout.”
Wallach said rulings in Utah, Connecticut, New York and Michigan represented “broad consensus” among federal judges.
Others watching the space like Mick Bransfield, a data and prediction markets consultant who has been tracking the litigation on his blog, do not think the outcome is so certain.
“The short answer is there’s not a lot of signal but there is a lot of noise,” Bransfield said. “There have been a lot of decisions from a handful of states and that might create the impression that things are worse than they are.”
Bransfield said the cases are interesting because both sides are completely certain they are correct.
“The heart of the issue is that commodities law is conflicting with state gaming law and it’s fascinating to talk to lawyers in each of those fields because they’re both 100% certain that they’re right and their field will prevail,” Bransfield said. “Once upon a time I’m sure this could have been resolved easily, but political consensus is dead,” Bransfield added. “I assume it’ll just be a brutal fistfight to the end.”
Gongwer News Service
High-stakes legal battles have exploded in nearly half of all American states in recent months as attorneys general, gaming companies and the federal government fight over who has the right to regulate prediction markets.
Prediction markets are overseen by the federal Commodity Futures Trading Commission. The industry favors that sole regulator, rather than a patchwork of regulations in the states — and the Trump administration maintains the CFTC’s authority supersedes state law. But state attorneys general argue the markets operate as de facto gambling platforms, giving them the authority to impose state-level regulations.
The dispute has created a multi-party fight that promises to drag on to the U.S. Supreme Court. In many cases, prediction markets are the ones launching legal campaigns against states that seek to regulate them. The companies and an industry coalition have sued 18 states in federal court and one in state court, in hopes of preempting state-level regulation.
Ten states have sued the companies. The CFTC has sued nine states. Tribal coalitions have initiated three lawsuits in federal courts in California, New Mexico and Wisconsin.
Kalshi, the largest prediction market operator in the United States, has been the most aggressive. The New York-based firm has sued 15 states and is involved in litigation in some capacity in 20 states. In nearly every instance, Kalshi has been the first to sue or to be sued.
In two states, Illinois and Michigan, Coinbase Prediction Markets initiated legal challenges. In Minnesota, the CFTC sued first.
Robinhood and Coinbase, platforms that are in part powered by Kalshi, have sued five states. Polymarket has sued five states and intervened in one case as a plaintiff. Crypto.com sued five and intervened in three as a plaintiff.
The case count for Kalshi, Polymarket and Crypto.com all include the suit brought in Kentucky by the Coalition for Fair Markets, the industry trade group comprised of the three. Both Polymarket and Crypto.com joined the CFTC’s suit in Illinois as an intervenor plaintiff.
The CFTC and prediction market operators argue that their products fall under the definition of “swaps” under the Commodity Exchange Act, which gives the CFTC “exclusive jurisdiction” over the futures trades.
Traditionally, that definition has only been applied to markets for products in the agriculture and energy sectors.
But companies like Kalshi and Polymarket, which are registered as designated contract markets with the CFTC, have expanded the definition to include wagers on events including sports, election outcomes and weather.
“Congress gave the CFTC exclusive jurisdiction to regulate these markets,” Zach Fulton, deputy director for the CFTC’s Office of Public Affairs, told State Affairs. “The CFTC has a statutory obligation to preserve stability in the markets where it has exclusive jurisdiction in the face of these unprecedented actions by some states.”
State regulators disagree. They want prediction markets to follow state gaming laws and pay taxes just as other, more traditional sports betting operators do.
In March 2025, Nevada became the first state to send a cease and desist order to Kalshi. The company responded by suing the Nevada Gaming Control Board three weeks later. Nine more states eventually issued cease and desist orders.
So far, courts have sided largely with the states. Of the 37 court rulings handed down in legal battles between the opposing sides, states have won 31, while prediction market operators have won six. Kalshi has won just four out of the 21 judicial decisions of which it has been a part.
In the most recent major ruling on Aug. 15, a federal judge in Connecticut denied Kalshi’s request for an injunction pending appeal. Kalshi appealed to the U.S. Court of Appeals for the Second Circuit which denied the motion Wednesday.
Courts in Michigan, Nevada and Washington have banned Kalshi from offering certain event contracts within their borders. Judges in Nevada have also barred Coinbase and Polymarket from operating in the state.
Crypto.com and Robinhood agreed to stop operating in Nevada while litigation continues.
Massachusetts in January became the first state to secure a preliminary injunction against Kalshi when a judge ruled in the state’s favor and blocked the platform from operating altogether. The ruling was later appealed, and a judge has allowed Kalshi to operate while the final decision is pending.
Prediction market operators have notched some important wins. In March, the Third Circuit Court of Appeals sided with Kalshi in a split decision barring New Jersey from imposing regulations.
“As the Third Circuit correctly ruled, the CFTC is our regulator, not the states,” Jacki McGavick, a spokesperson for Kalshi, told State Affairs. “We're confident in our legal arguments as this plays out in the remaining courts.”
Eighteen cases have reached the U.S. Circuit Court of Appeals in eight out of the 12 regional circuits.
The legal strategy pursued by prediction markets and the CFTC represents “an attempted federal hostile takeover of the sports gaming industry without so much as a sliver of clear congressional authorization,” said Daniel Wallach, an attorney who specializes in gaming and sports betting who has tracked the cases closely.
“This was offensive to me, both as policymaking as well as someone who had a front row seat,” Wallach said. “What was frivolous in 2018 [when the U.S. Supreme Court legalized sports betting] becomes legally plausible in 2026.”
It is virtually certain that the Supreme Court will have the final say in the litigation. Wallach said the states are building early momentum.
“We’re already 37 decisions into it,” he said. “We’ve had a cross section of federal judges and state judges around the country take a deep dive on this analysis and the momentum is shifting decidedly in favor of the states.”
Wallach said the more recent rulings, which tend to favor states compared to earlier wins which favored prediction market operators, have the benefit of the legal analysis in all of the previous rulings.
“It’s a full comprehensive menu of legal arguments and the courts are now better equipped to pore over these arguments than some of the earlier courts were when rulings were made relatively early on a motion for preliminary injunction several weeks into a case,” Wallach said. “I would equate it to something akin to a complete game shutout.”
Wallach said rulings in Utah, Connecticut, New York and Michigan represented “broad consensus” among federal judges.
Others watching the space like Mick Bransfield, a data and prediction markets consultant who has been tracking the litigation on his blog, do not think the outcome is so certain.
“The short answer is there’s not a lot of signal but there is a lot of noise,” Bransfield said. “There have been a lot of decisions from a handful of states and that might create the impression that things are worse than they are.”
Bransfield said the cases are interesting because both sides are completely certain they are correct.
“The heart of the issue is that commodities law is conflicting with state gaming law and it’s fascinating to talk to lawyers in each of those fields because they’re both 100% certain that they’re right and their field will prevail,” Bransfield said. “Once upon a time I’m sure this could have been resolved easily, but political consensus is dead,” Bransfield added. “I assume it’ll just be a brutal fistfight to the end.”
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