Forty-four US state attorneys general are demanding the CFTC withdraw its proposed rule on sports event contracts traded on prediction markets. Beyond the political clash, the entire boundary between federal authority and state law is at stake, with Kalshi and Rothera on the front lines.
🔑 Key takeaways
- Bipartisan coalition of 44 attorneys general, including Ohio, Texas, and Virginia, against the CFTC
- June 2026 draft rule: CFTC defines “game” as any activity with measurable outcomes
- Kalshi processed over $1B in monthly user bets in 2025, 90% on sports outcomes
- CFTC in litigation with 9 states; 38 AGs back Massachusetts lawsuit against Kalshi
- MLB, NBA, NFL, MLS and consumer groups urge ban on election-related contracts
A bipartisan letter challenging the CFTC’s draft rule
Led by Ohio Attorney General Andy Wilson, the letter was sent to the Commodity Futures Trading Commission as the public comment period on its first proposed rule dedicated to prediction markets was closing. It gathers signatures from West Virginia, Texas, Virginia, New Mexico, and South Dakota, in a rare bipartisan configuration on a financial regulation matter. The volume of signatures collected in just a few weeks underlines the political sensitivity of the file ahead of the 2026 FIFA World Cup, which has pushed platform volumes to unprecedented levels.
Attorneys general from Pennsylvania, Montana, Wyoming, and Kentucky — states where several major sector platforms are based — did not join the coalition. This mapping already draws the fault line between jurisdictions favorable to prediction markets and those defending a return to the traditional allocation of gambling authority.
“The proposed rule exceeds the CFTC’s statutory authority, is in tension with the Constitution, and would otherwise be arbitrary and capricious in its current form. The CFTC should restart its drafting process from scratch and clarify that sports betting and gambling cannot be traded on designated contract markets, but are instead subject to state law.”
Coalition of 44 attorneys general, letter to the CFTC, July 2026
A legal arsenal rooted in the history of the Commodity Exchange Act
The AGs’ argument rests on a textual reading of the Commodity Exchange Act (CEA), enacted in 1936 and overhauled after the 2008 financial crisis. The 2010 Dodd-Frank Act expanded the CFTC’s authority over swaps and derivatives, but the states argue this extension was designed to prevent another banking meltdown, not to legalize nationwide sports betting.
This reading is notably defended by former CFTC Chair Timothy Massad, now a research fellow at the Harvard Kennedy School, who believes the agency has “lost its way”. Former senator and ex-commissioner Heidi Heitkamp has also raised concerns about the CFTC’s mandate expanding beyond its initial mission. Their common critique: Congress never intended to entrust sports betting regulation to a market agency.
The historical timeline plays in the states’ favor: when Dodd-Frank was passed, the Professional and Amateur Sports Protection Act (PASPA) still prohibited states from authorizing sports betting. It was only in 2018, in Murphy v. NCAA, that the Supreme Court struck PASPA down, paving the way for the current wave of state-level legalizations. Entrusting the regulation of these markets to the CFTC today would, according to the AGs, short-circuit nearly 80 years of federal and state law.
Court battle: contradictory rulings
The standoff between Washington and state capitals is already playing out in courtrooms. At the end of June 2026, a Michigan judge blocked Kalshi from offering sports bets in the state, siding with local authorities. The following Saturday, a federal judge in Minnesota temporarily enjoined a statewide prediction-market ban before it could take effect — illustrating the deep legal uncertainty surrounding these platforms.
The CFTC has sued nine states to defend what it considers its exclusive jurisdiction, relying on the federal preemption argument. The commission argues that all event contracts — including sports bets — qualify as swaps under its purview. On the state side, New York Attorney General Letitia James is coordinating an amicus brief signed by 38 attorneys general in support of the Massachusetts lawsuit against Kalshi, filed in September 2025. Massachusetts has also sued Coinbase and Gemini for similar violations of state gambling laws.
A market that fractures traditional players
The CFTC’s proposed definition of “game” — any activity in which participants generally engage for recreation or entertainment, which is governed by rules and which includes measurable outcomes depending on chance, skill, or athletic ability — does not command consensus. The CME Group, holding company of the Chicago futures exchange, has challenged it in its own letter to the CFTC. General counsel Jonathan Marcus wrote that defining the “game” as the sport itself rather than the financial wager on the sport amounts to a striking attempt to expand federal preemption.
Younger platform Rothera, launched in June, has taken the opposite view. CEO Thomas Chippas argued that a definition focused on “betting” would sweep in every event contract, as the CFTC itself acknowledges. Rothera therefore considers that a “betting”-based definition should be rejected.
Within the ecosystem, Kalshi remains at the center of the storm. In 2025, the platform reported more than $1 billion in monthly user bets, 90% of which were placed on sports, according to the New York Attorney General’s office. Professional leagues — Major League Baseball, the National Basketball Association, the National Football League, and Major League Soccer — have also filed comments, fearing contracts on athletes’ personal affairs, team management decisions, or press-conference statements. Consumer advocacy groups Better Markets and Public Citizen have separately called for a ban on election-related event contracts.
Mississippi Attorney General Lynn Fitch has, in a separate move, urged the CFTC to recognize state authority, pointing out that the federal government has never intervened in gambling regulation.
| Player | Position | Main argument |
|---|---|---|
| 44 AGs (Ohio + coalition) | Against the draft | CEA mandate exceeded |
| CME Group | Against the definition | Excessive federal preemption |
| CFTC | For its jurisdiction | Event contracts treated as swaps |
| Rothera | For the CFTC definition | “Betting” definition too broad |
| Kalshi | Defends its model | Federally regulated market status |
| MLB/NBA/NFL/MLS leagues | Against | Integrity of competitions at risk |
| Better Markets, Public Citizen | Against (elections) | Public interest |
A conflict that may end up in Congress
The stakes of this standoff are significant. If the CFTC prevails, prediction markets would operate as federally regulated derivatives venues in every state, regardless of local gambling laws. If the states win, Kalshi, Coinbase, Gemini, and Rothera would have to navigate a patchwork of state licensing requirements and would likely see their sports volumes collapse outside a handful of permissive jurisdictions.
Given the current polarization in Washington, a legislative clarification seems unlikely in the short term. Timothy Massad’s calls for Congressional intervention, combined with the bipartisan pressure of 44 attorneys general, may nevertheless force a debate on Capitol Hill. In the meantime, the prediction market industry is operating in an increasingly narrow gray zone, suspended between increasingly contradictory court decisions.
Sources
- The Block — 44 state attorneys general tell CFTC it lacks authority over sports prediction markets
- New York Attorney General — James joins bipartisan coalition defending states’ gambling laws
- Mississippi Attorney General Lynn Fitch — Letter to the CFTC
- Binance Square — Coverage of the CFTC rule comment period
- Bloomberg Law — Sport leagues, states urge CFTC to modify prediction-market rule
- CNBC — 44 states say CFTC has no authority over sports prediction markets
This article is published for informational and educational purposes only. It does not constitute investment advice. Do your own research (DYOR) before making any decision.
