The Commodity Futures Trading Commission is facing significant resistance. Forty-four state attorneys general recently submitted a letter claiming the agency lacks the authority to regulate sports-related contracts offered through prediction market platforms. The letter was submitted as Monday marked the final day for the public to comment on the CFTC's first proposed rule concerning prediction market regulation. The coalition, led by Ohio Attorney General Andy Wilson, argues that the CFTC's current proposal exceeds its legal boundaries and creates conflicts with existing state laws.
Wilson and the group of state attorneys general urge the CFTC to abandon its rule and instead establish that sports betting should fall under state jurisdiction. While a majority of states have joined the opposition, some major ones, including Florida, Georgia, New Hampshire, Missouri, and Texas, did not sign the letter. The disagreement highlights a long-standing jurisdictional dispute that has grown more urgent since last year, when the popularity of prediction market contracts—especially those tied to sports events—sparked a surge in platform usage.
CFTC views contracts as federal derivatives
The CFTC insists that all contracts offered on prediction market platforms are financial derivatives, specifically classified as swaps under federal law. The agency released a proposed rule in June, which attempted to clarify definitions for key terms, including the term 'gaming.' The CFTC described gaming as an activity meant for entertainment, governed by specific rules, and determined by measurable outcomes that depend on skill. This definition is central to the agency's position that contracts resembling sports betting are best regulated at the federal level.
However, the CME Group, a derivatives marketplace, has pushed back against the CFTC's wording. In a letter to the agency, CME general counsel Jonathan Marcus argued that the proposed rule suggests federal preemption of state sports regulations. He called the move a significant overreach. Despite this concern, the CME operates as a CFTC-regulated exchange for FanDuel's sports prediction markets, illustrating the tangled nature of the issue.
Prediction platforms express differing views
Not all prediction market platforms have the same perspective. Rothera, a platform that launched in June, actually backs the CFTC's definition of 'gaming.' CEO Thomas Chippas emphasized that defining these contracts in terms of 'wagering' could result in overbroad regulation, as it might include every event-related contract. He argues against such a definition, believing it could unnecessarily complicate the regulatory framework.
Meanwhile, Kalshi, another prediction market platform, has seen legal challenges in different states. A Michigan judge recently blocked the company from offering sports bets in the state, while in Minnesota, a federal judge issued a temporary injunction to stop a statewide ban from going into effect on Saturday. These outcomes reflect the inconsistency in judicial opinions on the matter as courts across the country weigh in.
The CFTC is involved in litigation with nine states as it defends its stance on regulating these contracts. The agency continues to argue that its exclusive jurisdiction is justified through federal preemption. However, states remain firm in their belief that such contracts are more akin to traditional sports betting and, therefore, should remain under their regulatory control.
The broader implications
This dispute is more than just a legal battle. The rapid growth in prediction market volumes, particularly those related to high-profile sports events like the 2026 FIFA World Cup, has intensified the conflict between state and federal regulators. With both sides claiming jurisdiction, the lines between where one authority ends and the other begins are becoming increasingly blurred.
Many legal experts believe the Supreme Court may ultimately decide who has the final say in regulating sports-related event contracts. Until then, the legal landscape remains fluid, with courts delivering a variety of opinions. The uncertainty is shaping how prediction market platforms operate and how they are perceived by both regulators and the public.