Why Washington is backing prediction markets over state bans

Washington is drawing a bright line in a fast-growing corner of online trading: prediction markets should be treated like federally regulated financial products, not state-by-state gambling.

The Trump administration’s Commodity Futures Trading Commission (CFTC), led by Chairman Michael Selig, is stepping into court fights involving platforms such as Kalshi and Polymarket as states move to block sports-style “event contracts.”

The clash matters well beyond niche apps, because a win for the CFTC could curb states’ ability to police what they view as unlicensed betting.

Federal power and prediction markets

Prediction markets let people buy and sell contracts tied to real-world outcomes, think “yes/no” prices on whether an event happens, rather than placing a traditional bet against a sportsbook.

Kalshi argues its sports-event contracts fall under the CFTC’s exclusive authority because they are exchange-traded “swaps,” a type of derivative the agency oversees under federal law.

States pushing back, including Nevada and Massachusetts, say these products amount to sports wagering offered without a state gaming license and without the consumer protections that come with regulated betting.

Selig has made the CFTC’s position unusually public, saying the agency will not stay on the sidelines as states attempt “statewide bans” that undermine federal jurisdiction.

The Chairman said the CFTC is filing amicus briefs to assert its authority over prediction market enforcement and regulation as states challenge the platforms.

The agency’s stance marks a shift in tone from prior efforts to constrain event contracts.

In January, Selig ordered staff to withdraw a rule proposal that would have banned event contracts tied to sports and politics, while signaling new rules were coming.

Courts, however, have not moved in lockstep.

Recently, a Massachusetts judge rejected Kalshi’s bid to keep offering sports-event contracts during an appeal, issuing an injunction that would bar the platform from operating without a state gaming license after 30 days.

Nevada regulators have pursued similar actions, including temporary orders affecting other platforms offering sports-style contracts.

Also Read: Why are prediction markets suddenly the hottest product in finance and tech?

Stakes and implications of the federal–state clash

At stake is whether prediction markets become a nationally uniform product rather than something that can be blocked or reshaped by local gambling rules.

If federal “preemption” (the idea that federal rules override conflicting state rules) holds, states could lose leverage over age limits, licensing, taxes, and consumer safeguards in a segment that already looks and feels like sports betting to many users.

The business momentum explains why the fight is heating up now.

As per reports, roughly 90% of Kalshi’s trading volume is tied to sports, and Kalshi said it saw more than $1 billion in trading volume during the Super Bowl.

About half of Polymarket’s transactions relate to sporting events, underscoring why state gaming regulators see these platforms as direct competitors to licensed sportsbooks.​

The political pressure is building alongside the legal pressure.

US senators asked the CFTC not to weigh in on prediction-market lawsuits, arguing these products “evade” state and tribal protections and undermine sovereign regulatory regimes.

That pushback sets up a messy path ahead: even as the CFTC argues it is policing a legitimate derivatives market, states and some lawmakers are signaling they see a backdoor expansion of sports betting without the usual guardrails.