44 State AGs vs. CFTC: The Constitutional Challenge
A bipartisan coalition of 44 state attorneys general filed a formal comment on the final day of the CFTC's rulemaking window, arguing the proposed Rule 40.11 exceeds federal authority and must be rewritten. Here's what the argument is, who's on each side, and what it means for traders.
The Coalition
“The Proposed Rule goes beyond the CFTC’s statutory powers, is in tension with the Constitution, and would otherwise be arbitrary and capricious in its current form.”
The coalition's core demand: the CFTC should withdraw its proposed amendments to Rule 40.11 and start over, with a new rule that "clarifies that sports bets and gambling cannot be traded on designated contract markets, but are instead subject to state law." Maryland AG press release
What Rule 40.11 Would Do
The CFTC's proposed amendments to Rule 40.11 (RIN 3038-AF65, 91 FR 35806 ) would establish a formal three-step public interest review for event contracts linked to gaming, war, terrorism, assassination, and unlawful activity.
Assess whether the agreements, contracts, transactions, or swaps qualify as event contracts (based upon an occurrence, extent of an occurrence, or contingency).
Determine whether the event contracts involve an activity enumerated in the Special Rule (gaming, terrorism, assassination, war, or unlawful activity) or similar activity.
If they involve such activity, undertake a public interest analysis and determine whether the event contract is affirmatively against the public interest.
The States' Constitutional Arguments
The coalition's letter reads like a litigation roadmap — its emphasis on APA standards and constitutional limits is designed to enable court challenges once the CFTC finalizes its rule. Five distinct arguments run through the filing.
CEA Statutory Limits
Congress created the CFTC to oversee commodity futures and swaps — not sports betting. The coalition argues that sports bets are not swaps, futures, or other derivatives, placing them outside the CEA's scope regardless of how platforms structure the contracts.
100+ Years of State Authority
States have regulated gambling, including sports betting, for over a century. The CFTC has no comparable expertise or history in this area. Transferring that authority to a federal financial regulator without explicit congressional direction would be a major change requiring clear statutory language.
APA Arbitrary & Capricious
The coalition argues the proposed rule would be arbitrary and capricious under the Administrative Procedure Act — language designed to lay the groundwork for a court challenge once the rule is finalized. APA review allows courts to vacate rules that exceed statutory authority or lack reasoned explanation.
Conflicts with Existing Federal Law
The letter notes the proposed rule would conflict with the Wire Act of 1961 (which prohibits interstate sports wagering) and the Indian Gaming Regulatory Act (which gives tribes exclusive rights to regulate gaming on their lands). Allowing the CFTC to override these statutes would amount to implied repeal — something courts resist without clear congressional intent.
Major Questions Doctrine
Regulating sports betting carries enormous economic and political implications — the kind of 'major question' the Supreme Court has said requires explicit congressional authorization, not just an agency's reading of a general grant of rulemaking authority.
CME Group Breaks Ranks
“By defining 'gaming' as the game itself rather than the financial wagering on the game, the CFTC's definition suggests the CEA is preempting state sports regulations, which is a striking overreach.”
CME Group's position is significant: it is itself a derivatives exchange — and it operates the CFTC-regulated exchange infrastructure behind FanDuel Predicts' sports prediction markets. An established exchange siding with the states against the agency's own definition underscores how contested the rule's central terms remain even within the industry the CFTC regulates.
CME did not ask the CFTC to abandon the rule entirely — it asked the agency to revise the "gaming" definition to focus on wagering rather than the sport itself, which would keep the agency's preemption footprint narrower.
How the Comment Record Split
More than 1,000 comments arrived before the July 27 deadline. The record did not split neatly along industry lines.
| Stance | Who | Core position |
|---|---|---|
Oppose / Narrow | 44 state AGs (led by Ohio AG Wilson) | Withdraw and rewrite; sports bets belong under state law |
Oppose / Narrow | NFL, NBA, MLB, AGA | Strengthen the rule; more protection for game integrity |
Oppose / Narrow | CME Group | Revise the 'gaming' definition — current wording preempts state sports law |
Support / Clarify | Coinbase, Hyperliquid, Multicoin | Finalize a clear federal framework; one national standard beats 50 state regimes |
Support / Clarify | Prediction market platforms | CFTC exclusive jurisdiction; event contracts are swaps under the CEA |
The Exception: North Carolina Takes the Opposite Approach
While 44 state AGs challenged federal authority, North Carolina moved in the opposite direction. Senate Bill 257, signed by Governor Robinson on July 7, 2026, explicitly recognizes the CFTC's exclusive federal authority over prediction markets and permits CFTC-registered platforms to operate in the state beginning January 1, 2027.
The law also imposes a 6% tax on trading fee revenue generated from North Carolina residents — showing that state-level authorization and revenue capture can coexist with federal framework. NC provides a direct legislative countermodel to the coalition's approach.
North Carolina access guideWhat This Means for Traders Right Now
No immediate change
A comment letter is not a court order or legislation. Existing contracts remain active. Platform access in your state is unchanged by this filing.
12–24 month rulemaking timeline
The CFTC must review 1,000+ comments before deciding whether to finalize, revise, or withdraw. Under the APA, a final rule typically takes 12–24 months from comment close — and any rule would include an effective date.
Litigation risk rises
The letter's APA language is designed to enable court challenges once a final rule is published. If the CFTC finalizes the rule, expect state AGs to sue quickly — adding another track to the existing circuit-court battles.
State-law track continues in parallel
The rulemaking and the state-court battles are independent. Michigan, Minnesota, Washington, and New York cases continue regardless of what the CFTC does with Rule 40.11. Full tracker →