For those of you who like to keep score, currently 18 states are engaged in litigation over prediction markets, such as Kalshi and Polymarket, claiming that they are violating state gambling laws. So far, the odds favor the prediction markets.
How Prediction Markets Work
Prediction markets are structured so that users buy and sell “event contracts” tied to a “yes” or “no” question such as “Will the Knicks will beat the Spurs?”. Bear with me here. The platforms operate as Designated Contract Markets (DCMs) under the Commodity Futures Exchange regulated by the Commodities Futures Trading Commission (CFTC). In plain English. Each contract is priced between one cent and 99 cents, based upon the probability of that event occurring with each winning contract paying out one dollar. So, if you bought a “yes” contract for the Knicks to beat the Spurs last night at 36 cents, you won $1 for this 36-cent (for lack of a better word) “bet”.
Gambling or CFTC Regulated
State Attorneys General from most-recently Rhode Island, but also AZ, CT, IL, IA, MD, MA, MI, MN, MT, NV, NJ, NY, OH, TN, UT, WA and WI, have applied an all-out full court press on the prediction markets contending that there is no substantive difference between events contracts and illegal sports betting.
The press break used by the platforms and the CFTC (bear with me again) is that state gambling laws are preempted by the CFTC’s exclusive jurisdiction under the Commodity Exchange Act (CEA) to regulate prediction markets/event contracts as “swaps” defined as any “contract … that provides for any purchase, sale, payment, or delivery … that is (1) dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency (2) associated with a potential financial, economic, or commercial consequence.” 7 U.S.C. § 1a47(A)(ii).
The platforms and the CFTC are currently outscoring the states in several federal courts, including the 3rd Circuit, but it hasn’t been a slam dunk.
The buzzer beater may be what the Ohio District Court found decisive when denying Kalshi’s attempt to enjoin the enforcement of Ohio’s gambling/gaming laws. The Court held that sports-events contracts are not “swaps” under the CEA, which have been understood to involve “financial instruments and measures that traditionally and directly affect commodity prices.” KalshiEX, LLC v. Schuler, 2026 WL 657004, at *6 (S.D. Ohio Mar. 9, 2026). You know, “currency exchange rates, the weather, and energy costs” not “the number of points scored in the Huskies-Bobcats game.” Id. The Court also saw an open lane in the language of the CEA which provides: “nothing contained in this section shall … supersede or limit the jurisdiction at any time conferred on … other regulatory authorities under the laws of the United States or of any State.” 7 U.S.C. § 2(a)(1)(A). According to the Court, this “leaves ample room for states to legislate and regulate … on matters tangential to trading swaps and commodities futures on DCMs.” Id., at * 8. This is assisted by the fact that the CEA expressly preempts state gambling laws in only certain limited circumstances, not including sports-events contracts, and the CFTC has recognized Congressional intent to “prevent gambling through the futures markets.” Id., at * 8-9.
There’s still a lot more to be played in this arena, and as we can see from the Kalshi market itself, day-to-day events can produce big swings in the “odds” (after taking game one, the Knicks rose from a 40.1% underdog to 53% favorite to win the title).
