WASHINGTON — Prediction market platforms are facing increasing regulatory scrutiny from multiple U.S. states, intensifying a legal dispute over whether the rapidly growing businesses should be regulated as financial markets or as gambling operations, according to court filings, regulators and company statements.
The dispute centers on companies including Kalshi and Polymarket, which allow users to trade contracts tied to the outcomes of future events such as elections, sports contests and economic data releases. Federal regulators have argued that many of these contracts fall under the jurisdiction of the U.S. Commodity Futures Trading Commission (CFTC), while several states contend that the products amount to unlicensed gambling under state law.
Since early 2026, a growing number of states have pursued enforcement actions, cease-and-desist orders or lawsuits against prediction market operators. Arizona filed criminal charges against Kalshi, while Connecticut, Illinois, Wisconsin, New York and other states have taken legal or regulatory steps challenging the platforms’ activities, according to state filings and court records.
Federal regulators have responded by defending their authority. In a statement released as part of litigation, CFTC Chairman Michael S. Selig said the agency would continue to protect its jurisdiction over federally regulated prediction markets. “The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators,” Selig said.
State officials have rejected that position. Arizona Attorney General Kris Mayes said in March that Kalshi was operating an illegal gambling business without a state license. Connecticut Attorney General William Tong similarly argued that certain event contracts constitute unlicensed gambling under state law.
The disagreement has drawn attention from lawmakers, gambling regulators and financial market participants as prediction markets expand. Industry supporters argue that the contracts function as federally regulated derivatives that can provide forecasting information, while critics say sports-related and election-related contracts closely resemble traditional wagering products.
The regulatory debate has unfolded alongside broader legal challenges involving prediction market operators and the CFTC, including disputes over new financial products and market oversight.
As of Thursday, litigation between states, federal regulators and prediction market companies remained active in multiple courts, and no nationwide resolution had been reached. Details on the timing of final court decisions remain unclear.
