Legal status at odds: Tracking developments in prediction markets and sports betting

Trading volumes on prediction markets such as Kalshi and Polymarket have increased significantly. In 2025, prediction markets generated $51 billion in trading volume, a figure that Bernstein Research estimated could reach $240 billion by the end of 2026 and $1 trillion by 2030. That growth has been accompanied by regulatory and judicial scrutiny, particularly where prediction markets intersect with sports.

As discussed in our April 2026 alert, “The rise of prediction markets and the surrounding regulatory environment,” the expansion of prediction markets has also raised questions regarding the jurisdictional boundary between the Commodity Futures Trading Commission (CFTC)’s oversight of designated contract markets (DCMs) under the Commodity Exchange Act (CEA) and state gaming regulation.

That tension has become more pronounced since April 2026, particularly with respect to sports event contracts, which have comprised approximately 80 percent of Kalshi’s total volume since July 2024. In this alert, we examine the current landscape for sports-related prediction markets, including ongoing litigation, responses by leagues and platforms, and developments that may affect the regulatory framework, including a pending CFTC rulemaking.

Legal argument overview

The central legal question in recent cases across the United States is whether CFTC-registered prediction markets must also comply with state gaming laws with respect to sports event contracts or whether federal regulation preempts state authority.

Prediction market platforms and the CFTC have argued that the CEA, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), preempts state gaming law as applied to CFTC-registered DCMs. Their position rests on two theories: 1) field preemption, under which Congress granted the CFTC exclusive jurisdiction over swaps traded on registered DCMs, leaving no room for concurrent state regulation, and 2) conflict preemption, under which they contend that compliance with both regulatory regimes is impossible and state law obstructs the CEA’s objectives.

States have argued that sports event contracts are not swaps as defined by the CEA and therefore fall outside the CFTC’s jurisdiction. States have also argued that Congress did not preempt state gaming law as applied to CFTC-registered DCMs, citing the presumption against preemption, provisions of the CEA that expressly reference state law, and the view that state gaming laws can operate alongside, rather than in conflict with, the federal framework.

Status of litigation involving state regulation

The legal arguments outlined above are now being tested in courts across the country. As reflected in our tracking chart, 19 states are currently involved in legal proceedings related to prediction market platforms, with lawsuits filed by both states and market participants.

On the state side, Washington, Massachusetts, Michigan, and Nevada have filed civil suits against prediction market operators, asserting that sports event contracts constitute unlicensed gaming activity, while Arizona has pursued criminal charges. Minnesota has sought to prohibit prediction markets within the state.

Prediction market platforms have also filed suits seeking declaratory and injunctive relief. Kalshi, for example, has brought actions against Nevada, New Jersey, Maryland, Ohio, New York, and Utah.

The CFTC has sued Arizona, Minnesota, Wisconsin, Illinois, New York, and Connecticut, taking the position that those states’ enforcement actions against prediction market platforms are preempted by the CEA.

Appellate courts have begun addressing the preemption issue, and different courts have reached differing conclusions. The US Court of Appeals for the Third Circuit was the first federal appellate court to rule on the preemption issue, holding in Kalshi’s favor. On August 28, 2026, the US Court of Appeals for the Ninth Circuit ruled 3–0 against Kalshi in KalshiEX, LLC v. Assad, No. 25-7516, affirming the district court’s order dissolving a preliminary injunction in favor of Kalshi and holding that sports event contracts are not “swaps” under the CEA and that federal law does not preempt state gambling regulation. The decision creates a confirmed circuit split with the Third Circuit. The Ninth Circuit remanded questions concerning election contracts to the district court.

Meanwhile, the US Court of Appeals for the Sixth Circuit is considering appeals arising from differing district court decisions in Tennessee and Ohio, and the US Court of Appeals for the Fourth Circuit heard argument in a Maryland case in early May 2026. In a separate but related development, a federal district court in Arizona granted the CFTC and the US Department of Justice a preliminary injunction in May 2026, barring Arizona from enforcing its gambling laws against event contracts listed on CFTC-regulated designated contract markets and pausing the criminal prosecution of Kalshi. This marked the first instance in this litigation in which the federal government, rather than a platform, obtained injunctive relief.

The Ninth Circuit’s decision confirms a circuit split with the Third Circuit. New Jersey has until September 3, 2026 to file its petition for a writ of certiorari with the US Supreme Court. The confirmed split makes the issue a strong candidate for Supreme Court review.

Federal and tribal action

It remains unclear whether Congress will address the underlying jurisdictional question through future legislation. The principal bill addressing sports event contracts on prediction markets remains pending before the Senate Committee on Agriculture, Nutrition, & Forestry. As with the other federal proposals discussed in our April 2026 alert, its legislative prospects remain uncertain. 

Tribes in California, Wisconsin, and New Mexico have sued Kalshi and Robinhood, arguing that offering sports event contracts through applications accessible on tribal land constitutes unauthorized sports betting. These cases add an additional layer of jurisdictional complexity beyond disputes between state and federal regulators.

Market and league responses

While litigation continues, prediction market platforms and major sports leagues have continued to address integrity-related concerns. As discussed in our previous alert, platforms such as Kalshi and Polymarket have adopted internal safeguards, including restrictions on trading by athletes, insiders, and politicians in contracts relevant to their positions or activities. League responses have ranged from opposition to collaboration.

Major sports leagues have taken varied approaches. The National Football League has asked Kalshi and Polymarket to refrain from offering markets that could be susceptible to manipulation, citing a desire to protect the sport from “unfair and unwanted allegations.”

The National Collegiate Athletic Association has called on the CFTC to pause college sports event contracts until the agency implements “appropriate regulations,” while also expressing a willingness to work with the agency on safeguards for student-athletes.

Major League Baseball has entered into an exclusive licensing deal with Polymarket for access to certain logos, branding, and official league data, in exchange for Polymarket’s commitment to develop a “comprehensive integrity framework” for baseball-related contracts.

Athlete participation has also expanded. Earlier this year, Milwaukee Bucks player Giannis Antetokounmpo became a shareholder in Kalshi, reportedly becoming the first basketball player to take an equity stake in the company.

What’s on the horizon: The CFTC’s proposed rule

One of the most significant near-term developments is regulatory rather than judicial. On June 10, 2026, the CFTC issued a Notice of Proposed Rulemaking (NPRM) proposing amendments to Rule 40.11 and a new Appendix F under Section 5c(c)(5)(C) of the CEA – the provision allowing the CFTC to prohibit contracts involving “gaming” and other enumerated activities that the agency determines are contrary to the public interest. 

For the first time, the NPRM proposes a formal definition of “gaming” and a structured three-step framework for evaluating whether a given event contract is an excluded commodity, involves an enumerated activity, and is contrary to the public interest.

Under the proposal, many broad-outcome sports contracts, including those involving final scores, point differentials, season-long statistics, and tournament advancement, would remain permitted. The CFTC has also indicated that it may prohibit certain sports-adjacent contracts, such as those tied to injuries, officiating decisions, discrete in-game actions, altercations, or pre-collegiate events.

The public comment period closed on July 27, 2026. Shortly before that deadline, 44 states submitted a joint letter disputing the CFTC’s authority to regulate sports-related event contracts. The submission reflects continuing disagreement regarding the scope of the CFTC’s authority and may indicate that questions surrounding the jurisdictional framework could persist after the rulemaking is finalized. The CFTC has acknowledged that the rulemaking addresses only a subset of the issues raised in its broader March 2026 Advance Notice of Proposed Rulemaking and that further rulemaking may follow.

The future of litigation and regulation

Absent congressional action, pending appellate litigation and the outcome of the CFTC’s rulemaking process will likely determine whether sports-related prediction markets are required to comply with state gaming laws. Depending on the outcome of those proceedings, platforms may be required to obtain state gaming licenses for certain activities, withdraw specific contracts in particular jurisdictions, or continue operating under a primarily federal regulatory framework. Any finalized Rule 40.11 framework may also affect the types of sports-related contracts that may be offered.

Key developments to monitor include: 1) whether New Jersey files a petition for a writ of certiorari by September 3, 2026 and whether the Supreme Court grants review in light of the confirmed circuit split, 2) how the Sixth and Fourth Circuits resolve their pending appeals, 3) the CFTC’s finalization of the Rule 40.11 and Appendix F framework following the close of the comment period, and 4) how the Ninth Circuit’s ruling affects pending state enforcement actions and related appeals.

The authors thank Summer Associate Andrew Jakab for his contributions to this alert.