The growing legal clash between the Commodity Futures Trading Commission (CFTC) and several US states over control of sports prediction markets is, at its core, about states’ authority to regulate gambling, not a technical dispute over financial instruments. In a SiGMA exclusive, gaming attorney and sports betting legal expert Daniel Wallach shared this view as debate around the issue intensifies.
“It’s about the state’s long-standing right to regulate all forms of gambling that take place within its borders,” Wallach said. “The sports event contracts are quintessential gambling.”
According to Wallach, courts have already noted that contracts offered by prediction market platforms such as Kalshi are “virtually indistinguishable” from products offered by licensed sportsbooks. He also pointed to the US Supreme Court’s 2018 Murphy v. NCAA ruling, which held that if Congress does not directly regulate sports gambling, states remain free to regulate it independently. “Both the US Supreme Court and Congress have made plainly clear that sports gambling is the prerogative of the states where there is no direct congressional regulation,” Wallach said.
The debate intensified earlier this month after the CFTC asked a federal court in New York to block Attorney General Letitia James from pursuing enforcement actions against sports event contracts offered through platforms linked to Coinbase and Gemini. The injunction request forms part of a broader legal campaign by the CFTC against states, including Wisconsin, Arizona, Illinois, Connecticut and Massachusetts, all of which have challenged prediction market operators such as Kalshi, Crypto.com, Coinbase, Polymarket and Robinhood over contracts tied to elections, sports and other real-world events.
Is this gambling or derivatives trading?
At the centre of the dispute is a fundamental legal question: Should prediction markets fall under federal commodities law or state gambling law? The CFTC argues that event contracts are federally regulated financial instruments governed by the Commodity Exchange Act (CEA), giving the agency exclusive jurisdiction over the market.
Once again, this administration is prioritizing big corporations over consumers.
— NY AG James (@NewYorkStateAG) April 24, 2026
When gambling platforms, including prediction markets, violate our laws, we will hold them accountable.
My office and @GovKathyHochul will keep defending our laws in court.https://t.co/SC0XkMIZsc
Wallach, however, told SiGMA the issue is less about technical definitions and more about congressional intent and state sovereignty. According to Wallach, states are not attempting to regulate derivatives markets broadly but are specifically targeting sports-related contracts they view as unlicensed betting products. “What the states are complaining about here isn’t the derivatives market as a whole,” he said. “It’s only a subset of the derivatives market, which only began a year ago and is sports gambling related.”
Why the New York case matters
The legal dispute began after New York AG Letitia James accused Coinbase Financial Markets and Gemini Titan of operating illegal gambling businesses through event-based contracts linked to elections and sports outcomes. Her office argued the products require licences under New York gambling law and sought injunctions, civil penalties and restitution.
The case forms part of a wider legal battle between the CFTC and several US states over prediction markets offered by platforms including Kalshi, Crypto.com, Coinbase, Polymarket and Robinhood. The CFTC has filed or supported legal actions against states, including Wisconsin, Arizona, Illinois, Connecticut and Massachusetts, as it seeks to defend what it describes as its “exclusive jurisdiction” over event contracts under federal law.
Today, the @CFTC sued the State of Wisconsin for encroaching on its exclusive legal authority over prediction markets. We won’t be intimidated by overzealous states seeking to nullify federal law.⬇️https://t.co/s4DVTxVngd
— Mike Selig (@ChairmanSelig) April 28, 2026
In response to New York’s enforcement action, the CFTC filed suit seeking to prevent the state from applying gambling laws to federally regulated event contracts. The regulator warned that state intervention risks creating “inconsistent and contrary obligations” for market participants and undermining a unified national regulatory framework. The outcome could have major implications for prediction markets nationwide, particularly if courts are forced to decide whether federal law preempts state gambling regulation.
Wallach: Courts will focus on congressional intent
Wallach argued that the CFTC’s position relies heavily on broad definitions of “swaps” and “commodities” under the CEA, rather than explicit congressional approval for sports betting markets. “The exchanges’ best arguments are based on definitions which make no references to sports gambling,” he said.
By contrast, Wallach believes states hold the stronger legal position because their arguments are rooted in legislative history and the traditional authority states have long exercised over gambling regulation. “The salient question is whether Congress ever spoke clearly about empowering the CFTC to regulate sports gambling,” he said.
The US Supreme Court’s 2018 decision in Murphy v. NCAA established that Congress cannot “commandeer” state legislatures by prohibiting them from authorising sports gambling. Justice Alito wrote that while Congress can regulate sports gambling directly, “if it elects not to do so, each state is free to act on its own.”
According to Wallach, Congress never intended the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, introduced after the financial crisis, to create what he described as a “side door” into sports betting through derivatives exchanges. “The reason Congress has been silent here is that it could not have been within the contemplation of Congress that Dodd-Frank would open up a side door into sports gambling,” he added.
Major questions doctrine could shape outcome
Wallach also suggested the “major questions doctrine” may become central to future rulings. The doctrine, increasingly cited in major US Supreme Court decisions, requires federal agencies to show clear congressional authorisation when regulating issues of major political or economic significance.
“Sports gambling is a major question, has vast economic significance,” Wallach said. “The courts are going to require a clear congressional authorisation specific to sports gambling.” That standard could make it harder for the CFTC to rely solely on broad statutory language to defend prediction markets tied to sports outcomes.
A legal fight with national implications
The growing conflict now extends beyond Kalshi and sports prediction markets alone. A ruling favouring the CFTC could significantly expand federal authority over event-based trading products and limit the ability of states to apply gambling laws to prediction markets.
A decision favouring states, however, could reshape how operators, including Kalshi, Coinbase and Polymarket, structure and offer contracts across the US. For Wallach, the outcome may ultimately depend on how courts frame the dispute itself. “Is it trading on designated contract markets,” he said, “or is it sports gambling?”
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