Regulation

    41 State Attorneys General Tell CFTC: Sports Prediction Markets Are Gambling, Not Derivatives

    A bipartisan coalition of 41 AGs filed a formal CFTC comment arguing sports event contracts are gambling under state law—and urging the agency to confirm it lacks jurisdiction to regulate them.

    By PredictionMarkets.usFriday, May 1, 20269 min read
    41 State Attorneys General Tell CFTC: Sports Prediction Markets Are Gambling, Not Derivatives

    On April 30, 2026, a bipartisan coalition of 41 state attorneys general filed a formal comment with the Commodity Futures Trading Commission (CFTC), delivering the most coordinated state challenge yet to federal oversight of sports-related prediction markets. The letter argues that platforms like Kalshi and Polymarket have "effectively become unregulated sportsbooks" — and asks the CFTC to confirm through rulemaking that it simply lacks the authority to regulate them.

    The comment marks a turning point. What started as a quiet working group of three states in April 2025 has grown into a 41-jurisdiction formal submission to a federal agency in an active rulemaking proceeding — the procedural equivalent of states filing a brief in a regulatory case that will define who gets to set the rules for sports event contracts in America.

    The Coalition's Central Argument

    The letter's core legal claim is direct: sports event contracts are gaming, not financial derivatives. Under the Commodity Exchange Act (CEA), Section 5c(c)(5)(C), the CFTC has authority to determine that an event contract is contrary to the public interest if it involves "gaming." The coalition argues that sports event contracts fall squarely within that definition — making them state-regulated gambling, not federally regulated derivatives.

    "Any distinction between sportsbook bets and prediction-market bets is illusory," the letter states. "On so-called 'prediction markets,' users can make all the same wagers they can make at a traditional sportsbook."

    The coalition goes further: because sports gambling regulation is a power reserved to states under well-established case law, the CFTC should affirm in its forthcoming rules that it lacks jurisdiction over sports-related event contracts — ensuring that the authority to regulate or prohibit sports wagering stays where states say it belongs.

    "The CFTC should recognize the limits of its power and affirm that states have the expertise, experience and tools to regulate sports betting as they have for more than a century," the letter says.

    Ohio Attorney General Dave Yost, who co-led the effort, was direct: "This is gambling, no matter how they try to dress it up — and that means it belongs under state jurisdiction. States have a longstanding right and responsibility to protect their citizens from the dangers of gambling, whether it's on a prediction market or a casino floor."

    41 States: Bipartisan and Nationwide

    The breadth of the coalition is remarkable. All 41 attorneys general represent states spanning every region of the country and every point on the political spectrum — red states, blue states, and swing states alike signed on.

    Among the co-leaders are Ohio AG Dave Yost, Nevada, New Jersey, New York, Tennessee, and Utah, alongside Maryland AG Anthony Brown and Colorado AG Phil Weiser.

    The full coalition includes attorneys general of: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, and Wisconsin.

    Colorado AG Phil Weiser framed the stakes in concrete terms: "In Colorado, the voters authorized betting on sports through regulated providers and directed a portion of the proceeds towards investments in our water infrastructure. It is important that federal regulatory oversight of event contracts not undermine this system by creating a massive loophole."

    Maryland AG Brown noted that his state has broader concerns beyond gambling regulation: on April 24, 2026, Maryland Governor Moore issued an executive order prohibiting state employees from using nonpublic government information to trade on prediction markets, addressing insider-trading-style risks that prediction markets create for public officials.

    From Three States to Forty-One: How This Coalition Was Built

    The path to 41 states began quietly in April 2025, when Maryland AG Brown created a common-interest working group on prediction markets with just three states. Over the following 12 months, that group expanded to roughly 16 states with more than 60 attorneys from gaming divisions and AGs' offices coordinating strategy.

    That coordination produced results before this comment letter. The coalition filed several amicus briefs in active litigation — including cases where states challenged Kalshi's federal preemption arguments. Their presence in those proceedings helped develop the legal framework that 41 states are now carrying directly into the CFTC's own rulemaking docket.

    The April 30 formal comment represents the coalition's shift from reactive litigation support to proactive rulemaking participation. Rather than waiting for courts to resolve the preemption question case by case, the states are asking the CFTC to take the question off the table entirely through binding rules.

    What the States Are Actually Asking the CFTC to Do

    The comment letter makes a specific regulatory ask: the CFTC should issue rules confirming it lacks jurisdiction over sports-related event contracts.

    This targets the rulemaking process directly — not just individual court cases. The CFTC's Advance Notice of Proposed Rulemaking on prediction markets, published in the Federal Register on March 16, 2026 (RIN 3038-AF65, Doc 2026-05105), specifically asked whether sports event contracts involve "gaming" under CEA Section 5c(c)(5)(C) and how the commission should factor responsible gaming standards into its public interest determinations.

    The 41 AGs are answering those questions: yes, sports contracts involve gaming; yes, they carry serious public health risks; and no, the CFTC should not be the entity setting consumer protection standards for them.

    The coalition's practical argument is hard to dismiss. States already have dedicated gambling regulators, tax collection systems, licensed casino and sportsbook operators, problem gambling resources, and consumer protection frameworks in place. The CFTC does not regulate for problem gambling, does not collect gambling tax revenue, and was not designed to fill the consumer protection role that state gaming commissions perform. Allowing a financial derivatives regulator to govern sports wagering creates structural gaps in both consumer protection and tax compliance, the states argue.

    The Federal Preemption Counter-Argument

    Kalshi and Polymarket have consistently argued the opposite position: their sports event contracts are derivatives regulated under the CEA at the federal level, and state gambling laws cannot override federal law in this domain.

    That argument received its strongest judicial endorsement to date on April 6, 2026, when the Third Circuit Court of Appeals ruled 2-1 in KalshiEX LLC v. Flaherty that the CFTC has exclusive jurisdiction over Kalshi's sports-related event contracts, upholding a preliminary injunction against New Jersey's enforcement efforts. The ruling was the first federal appellate decision affirming CFTC preemption over state gambling laws for prediction market contracts.

    The Ninth Circuit subsequently heard oral arguments on related California and Washington state preemption questions in April 2026, with that ruling still pending.

    Meanwhile, the CFTC itself entered the preemption fight directly. The agency filed suit against Arizona, Connecticut, and Illinois seeking declaratory judgment, and obtained a temporary restraining order in April 2026 barring Arizona from enforcing its gambling laws against CFTC-regulated designated contract markets — the first time the CFTC has used its own enforcement power to protect prediction market operators from state prosecution.

    The simultaneous advance of state pressure through this coalition comment and federal litigation through the active circuit court cases means the preemption question is now being contested on two fronts at once: the CFTC's own rulemaking docket and the federal courts.

    The CFTC's Position and What Comes Next

    The CFTC's April 30 comment deadline has passed. The agency now has an extensive public record to consider — including this 41-state coalition letter, platform industry comments, academic submissions, and, separately, a letter from the NBA raising integrity concerns about sports prediction markets and calling for reforms.

    The CFTC signaled in January 2026 that it was withdrawing uncertain prior guidance on sports contracts and committing to comprehensive rulemaking rather than ad hoc enforcement. That commitment is now being directly tested: the 41-state comment letter is explicitly asking the CFTC to issue rules against its own jurisdiction over sports contracts.

    The commission faces a structural tension. Its traditional mandate is to foster competitive, efficient markets for derivatives. But the CEA's public interest provisions — specifically the "gaming" carve-out — give it authority to determine certain contracts are contrary to the public interest. Whether sports event contracts qualify is precisely the question this rulemaking must resolve.

    Whatever the CFTC decides, challenges will follow. A ruling affirming CFTC jurisdiction will invite the coalition to escalate legal challenges under the Administrative Procedure Act. A ruling disclaiming jurisdiction over sports contracts would be a significant win for state gambling regulators — but would likely trigger immediate challenge from the platforms and the broader prediction market industry.

    FAQ

    What exactly did 41 attorneys general file? A formal public comment in response to the CFTC's Advance Notice of Proposed Rulemaking on prediction markets (RIN 3038-AF65, published March 16, 2026). It is a written legal and policy submission arguing that the CFTC should confirm through formal rulemaking that it lacks jurisdiction over sports-related event contracts.

    Does this comment have legal force? Not directly — a public comment is not a court order. But it creates a formal record the CFTC must consider in its rulemaking. If the CFTC issues rules that contradict the states' position without adequately addressing their arguments, that creates grounds for Administrative Procedure Act challenges in federal court.

    Can Kalshi and Polymarket US still offer sports markets? Yes, for now. Rulemaking takes months to years to finalize. Active federal injunctions protect Kalshi's operations in New Jersey and Arizona. QCX LLC (d/b/a Polymarket US), licensed as a CFTC designated contract market as of July 9, 2025, also operates under federal regulatory standing. The ongoing litigation and this rulemaking proceed in parallel with trading continuing.

    What happens if states win the jurisdictional argument? Sports event contracts would be treated as gambling under state law. Platforms would need state gaming licenses to offer sports contracts, or would be prohibited from doing so in states without favorable licensing regimes. Non-sports prediction markets — covering economics, weather, geopolitics, and other categories — would remain under CFTC jurisdiction regardless of how the sports question resolves.

    How does this relate to the circuit court cases? The AG coalition comment and the circuit court cases are parallel proceedings, not the same. Courts interpret existing law; the CFTC rulemaking creates new rules. Even if the Third Circuit ruling stands (CFTC preemption for Kalshi in New Jersey), a new CFTC rule disclaiming jurisdiction over sports contracts could change the legal landscape for future cases.

    What This Means for Prediction Market Traders

    For users trading sports event contracts on Kalshi or Polymarket US, the short-term operational picture is unchanged. Both platforms operate under federal regulatory standing and existing court injunctions.

    The long-term picture is less certain. The state AG coalition has made its formal argument in the regulatory proceeding that will shape sports prediction market law. The industry has filed its counter-arguments. Federal courts are sorting through the preemption question circuit by circuit. And the CFTC must now produce rules that either settle this dispute or provoke the next round of legal challenges.

    What has changed is the weight and formality of the state challenge. Forty-one attorneys general submitting a coordinated formal regulatory comment is a signal that states intend to participate in every available legal forum — not just file lawsuits and hope for favorable courts. The rulemaking record is now unambiguously contested.

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