State Attorneys General Challenge CFTC Prediction Market Legal Framework

A coalition of 44 state attorneys general has opposed the Commodity Futures Trading Commission’s proposed rule for event contracts, arguing that the agency lacks authority to regulate prediction markets offering sports-related products.

The letter was filed on Monday as the public consultation period closed, representing the strongest coordinated state response to the CFTC’s attempt to establish a federal framework for prediction market platforms.

Led by Ohio Attorney General Andy Wilson, the coalition said the draft rule “goes beyond the CFTC’s statutory powers, is in tension with the Constitution, and would otherwise be arbitrary and capricious.”

The attorneys general urged the commission to withdraw and rewrite the proposal, maintaining that sports wagers belong under state gambling laws rather than federal derivatives regulation.

Florida, Georgia, New Hampshire, Missouri and Texas did not sign the letter. However, the other states argued that the proposal weakens their longstanding authority over gambling.

“The proposal takes a sledgehammer to the states’ historic power,” the letter warned, accusing the CFTC of seeking sole authority to decide “what gambling will be permitted, where it will take place, and how it will operate.”

States raise statutory, constitutional and consumer protection objections

The coalition outlined three main legal objections. First, it said the Commodity Exchange Act does not provide a basis for the CFTC to regulate sports prediction contracts.

Also it argued that the rule would be arbitrary and capricious under the Administrative Procedure Act. The final part warned hat the proposal could breach the non-delegation doctrine by giving the commission powers beyond constitutional limits.

States also argue that prediction markets avoid safeguards applied to licensed sportsbooks, including age restrictions, licensing checks, responsible gambling obligations, consumer protections and taxation.

Prediction market volumes increased sharply during the 2026 FIFA World Cup. Bettors Insider reported weekly volume of $12.2 billion in June, with sports contracts accounting for $5.8 billion.

The CFTC maintains that these contracts can qualify as swaps or derivatives, while states say they function like conventional sports bets and compete directly with regulated bookmakers.

Federal pre-emption disputes continue across several US courts

The commission has invoked federal pre-emption in legal disputes with nine states, arguing that federally regulated exchanges fall under its exclusive jurisdiction. Rep. Dusty Johnson recently defended the distinction between derivatives and gambling.

“Derivatives are tools. They’re a means to an end. They’re not an end themselves. While products aren’t regulated on merit, they should, according to the CEA, serve a purpose, whether managing risk or surfacing useful information. They’re not wagers, and the CFTC is not a gambling regulator.”

Court decisions are presently divided. The Third Circuit upheld federal pre-emption in Kalshi’s case against New Jersey, while a Michigan judge later blocked Kalshi’s sports contracts. A federal judge in Minnesota also temporarily prevented a statewide prediction market ban from taking effect.

The prediction markets scene is booming, but also calling for regulations by US authorities. While CFTC validates these market with recent legislation, 44 states have opposed the latest framework. Kalshi is facing multiple cases across other US jurisdiction.