Why Prediction Markets Are Federally Legal But State-Restricted
Same company, same federal license, and still a state lawsuit. The contradiction makes sense once you see how federal commodity law and state gambling authority overlap.
Legal systems
2
Active states
14
Possible paths
3
Appeals rulings
1
Quick Summary
The key takeaway from this page
Two legal systems, one industry
The federal commodity lane and the state gambling lane are colliding over the same product
Short answer
Federal law governs commodity contracts. State law governs gambling. States argue prediction markets belong in the second bucket, not the first. That's why a federally licensed company can still end up fighting state regulators in court.
Federal level (CFTC)
Law: Commodity Exchange Act (CEA)
Agency: Commodity Futures Trading Commission (CFTC)
License type: Designated Contract Market (DCM)
Kalshi: CFTC-licensed DCM — legally authorized to offer event contracts as commodity derivatives under federal law.
Federal position: prediction markets are commodity contracts, so the CFTC controls and state gambling laws should not apply.
State level (AGs / gaming boards)
Law: State gambling statutes + police power
Authority: State attorneys general and gaming boards
Legal hook: 10th Amendment authority over health, safety, and morals
State position: prediction markets look and operate like gambling — users risk money on uncertain outcomes for profit.
State position: a federal license does not erase state gambling authority if the product is still gambling under state law.
How dual sovereignty works
Why both sides can claim authority until courts settle the classification fight
The Supremacy Clause makes federal law override state law in areas of federal jurisdiction. For commodity contracts, the CFTC rules. But states retain police power over gambling — and if a court decides prediction markets are gambling, the Supremacy Clause does not help. The threshold issue is classification.
Under the 10th Amendment, states have broad authority to regulate gambling as a matter of public health and morals. State AGs argue that letting residents risk money on uncertain outcomes — even on a CFTC-regulated platform — is still gambling, regardless of the federal label.
The Third Circuit became the first federal appeals court to weigh in on April 6, 2026, ruling 2-1 that the CFTC has exclusive jurisdiction over DCM trades. But there is no Supreme Court precedent yet, and other circuits are still testing the same core issue.
The legal question at stake
Both sides agree on the facts of trading; they disagree on the legal category
Are prediction market contracts commodity contracts or gambling contracts?
If they are commodity contracts, the CFTC wins and states lose. If they are gambling contracts, states win and the federal commodity framework loses much of its force.
Platform position (Kalshi, Robinhood)
These are commodity contracts. The CFTC reviewed and licensed them, so the Supremacy Clause should block state gambling law from applying.
State position (WA, NV, MA, AZ, NY, CT, IL, MI)
These are gambling. A federal license does not override state gambling authority, and the CEA does not explicitly preempt state gambling law.
The Third Circuit ruled on April 6, 2026 that the CFTC has exclusive jurisdiction over DCM trades. That is the first appeals-court answer — not the last nationwide answer.
Active state actions
The states currently challenging prediction markets and the basic theory behind each action
These are the states currently challenging prediction markets, along with the basic legal theory behind each action.
| State | Legal claim | Status | User access |
|---|---|---|---|
| New Jersey | State gaming enforcement | lawsuit | Kalshi remains available in New Jersey after the Third Circuit's April 6, 2026 ruling upholding Kalshi's injunction. Access could still change if New Jersey wins en banc rehearing or Supreme Court review. |
| Washington | CEA preemption | lawsuit | Restricted — Kalshi and Kalshi-powered apps blocked for WA residents |
| Nevada | State gambling statute | injunction | Kalshi blocked in Nevada. Polymarket separately blocked (January 2026). Robinhood PM may still be available. |
| Massachusetts | State gambling statute | lawsuit | Kalshi sports contracts blocked for MA residents by court order (January 2026). |
| Arizona | Criminal gambling charges | criminal | Kalshi access restricted for AZ residents. First criminal case against a CFTC-regulated prediction market in the US. |
| New York | State gambling statute | cease-and-desist | Both Kalshi and Polymarket restricted for NY residents. |
| New York | Unlicensed gambling (NY civil) | civil-lawsuit | No immediate change — civil suit only, no TRO or preliminary injunction at filing. NY residents remain blocked from Kalshi and Polymarket under the prior 2025-06-01 C&D; Coinbase and Gemini prediction-market products remain active pending proceedings. |
| Connecticut | State gambling statute | cease-and-desist | Kalshi and Polymarket restricted in CT. CFTC sued CT April 2, 2026 to block enforcement. |
| Illinois | State gambling statute | cease-and-desist | Kalshi blocked in Illinois. CFTC sued IL April 2, 2026 to block enforcement. |
| Michigan | State sports betting law | lawsuit | Kalshi sports contracts restricted in MI. |
| Ohio | State gaming law enforcement + $5M fine | regulatory-fine | Kalshi remains operational in Ohio while the fine is contested. The federal preemption case from the March 9, 2026 ruling (Judge Sarah D. Morrison) is on appeal to the Sixth Circuit. Political and economic markets are unaffected. |
| Kentucky | Statutory prohibition on licensee-operated PMs in KY | statute | KY residents can still access Kalshi, Polymarket US (QCX LLC d/b/a Polymarket US), and Robinhood Predictions today. The law primarily forces sports-betting licensees (DraftKings, FanDuel, Fanatics) to choose between their KY sportsbook license and offering prediction markets in KY. Effective approximately 90 days after enactment. |
| Kentucky | Proposed 14.25% excise tax on standalone PM exchanges | tax-proposed | No change to access today. HB 757 is proposed, not enacted; vote stage and effective date both pending the legislative record. |
| Minnesota | Chapter 97 prediction-market provisions | legislation | No platform-source Minnesota access change was verified in this receipt. The official Chapter 97 text gives an August 1, 2026 effective date for section 609.7615, so this row should not be read as proof of immediate Minnesota platform access loss. |
What happens next
Three paths that could resolve the federal-versus-state split
Court: PMs = commodity contracts
The CFTC wins. State bans are preempted by federal commodity law. Platforms can operate nationwide, and state gambling laws would not apply.
Court: PMs = gambling contracts
States win. Platforms would need state-by-state gambling licenses to operate legally, or exit those states. A federal license alone would not be enough.
Congress intervenes directly
Congress could pass prediction-market-specific legislation. That is separate from the Clarity Act, which addresses digital-asset market structure, not event-contract jurisdiction.
Regulatory status note
Some platform-specific details continue to move with CFTC guidance, appellate rulings, and state filings. Check the live trackers if you need the latest practical access outcome.
Editorial note
How to read this explainer and where the legal claims come from
Frequently Asked Questions
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