Predict 2026 Highlights CFTC-State Battle Over Regulatory Authority
United States.- 7 October 2026 | www.zonadeazar.com The rapid expansion of prediction markets in the United States is creating an increasingly complex regulatory dispute between the Commodity Futures Trading Commission, CFTC, and states seeking to enforce their own gambling laws.
At Predict 2026 in New York, panellists described a landscape defined by multiple lawsuits, conflicting court decisions and a growing possibility that the US Supreme Court may eventually be asked to resolve the issue.
A Regulatory “Mess”
Rob Schwartz, partner at Morgan Lewis & Bockius and a former CFTC General Counsel, described the current situation as a major dispute over where state-regulated gambling ends and federally regulated derivatives trading begins.
Sports-related event contracts have become the main focus as their expansion has accelerated the conflict.
Two Core Legal Questions
CFTC General Counsel Tyler Badgley said the large volume of litigation ultimately comes down to two central questions.
The first is the scope of the Commodity Exchange Act and which products fall within the statutory definition of a swap.
The second is the extent to which federal law pre-empts state gambling regulation.
Four Main Categories of Litigation
Badgley divided current legal disputes into four broad categories.
The first consists of Designated Contract Markets going to federal court to prevent states from applying gambling laws to their products.
The second involves states bringing their own enforcement proceedings against CFTC-regulated entities.
States Pursue Criminal Action
Some jurisdictions have moved beyond administrative enforcement.
Arizona filed a 20-count indictment against Kalshi in March over alleged unlicensed gambling and illegal election wagering.
A federal judge temporarily prevented the state from continuing the criminal case while the legality of event contracts remains unresolved.
CFTC Defends Its Jurisdiction
The third category consists of lawsuits filed by the CFTC itself.
The federal agency has sought preliminary injunctions preventing states from enforcing gambling laws against federally regulated markets.
During 2026, the CFTC has launched actions involving jurisdictions including Arizona, Connecticut, Illinois and New York.
Consumers, Tribes and Other Litigation
The fourth category covers a wider group of disputes.
These include class actions as well as tribal lawsuits alleging that certain prediction-market activity conflicts with the Indian Gaming Regulatory Act.
The issue therefore extends beyond a simple federal-versus-state regulatory dispute.
Conflicting Court Decisions
One of the biggest challenges is the absence of a uniform approach across federal courts.
Different circuits have reached different conclusions on whether federal commodities law displaces state gambling regulation when contracts relate to sporting events.
That leaves prediction-market operators facing different legal conditions depending on jurisdiction.
Illinois and Ohio Show the Divide
Recent cases illustrate those differences.
In Illinois, a federal judge preliminarily blocked several state restrictions after finding that the contracts were likely to qualify as federally regulated swaps.
In Ohio, meanwhile, the Sixth Circuit gave the state greater room to apply its gambling laws to certain sports event contracts.
Supreme Court Could Become Central
Lexicon Labs co-founder and CEO Alper Ozgit said the US Supreme Court should intervene to provide regulatory clarity.
Bloomberg Intelligence senior litigation analyst Elliott Stein also argued that the Court could accept one of the cases.
However, he acknowledged a potential obstacle: many existing rulings concern preliminary injunctions, while the Supreme Court often prefers cases that have reached a final judgment.
Further Decisions Pending
The Fourth Circuit is currently considering litigation between Kalshi and Maryland gaming regulators.
The Massachusetts Supreme Judicial Court is also examining a dispute over the state’s authority to regulate sports event contracts.
Those decisions could add further interpretations to an already fragmented landscape.
CFTC Supports a National Framework
The CFTC maintains that markets registered under its supervision should operate within a uniform federal system.
The agency argues that allowing separate state regimes would create the kind of fragmented regulatory framework the Commodity Exchange Act was designed to avoid.
States Defend Gambling Authority
States argue that they retain longstanding authority over gambling activity.
Their position is particularly strong regarding sports contracts which, according to several state regulators, function in practice much like traditional sports wagering.
Next Steps or Impact
The conflict between the CFTC and states will continue to unfold simultaneously across multiple courts.
Until a uniform legal interpretation emerges, prediction markets are likely to face different rules depending on the jurisdiction and the type of contract offered.
Predict 2026 highlighted that the central question is no longer simply whether these markets will continue to expand, but which level of government will ultimately have the authority to regulate them.
Editó: @fonta
