Prediction Markets Go on Offense: This Week’s Major Victories and CFTC Actions

This week has proven pivotal for the prediction markets industry, with a series of legal and regulatory developments that could have far-reaching consequences for federally-regulated event contracts in the United States. Notably, the Commodity Futures Trading Commission (CFTC or Commission) has taken an aggressive stance in asserting its exclusive jurisdiction, joining the US Department of Justice (DOJ) in blocking state enforcement actions, and announcing a new Innovation Task Force to develop a clear regulatory framework for prediction markets.

Third Circuit Affirms Federal Preemption Over State Gambling Laws

According to the Third Circuit, state gambling laws must yield to federal derivatives regulation. A split Third Circuit panel delivered a significant victory for KalshiEX LLC on April 6, affirming the district court’s preliminary injunction blocking New Jersey from enforcing its sports gambling laws against the CFTC-registered prediction market platform. In the majority opinion, US Circuit Judge David Porter held that the Commodity Exchange Act (CEA) “preempts state laws that directly interfere with swaps traded on a designated contract market,” finding that “Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed DCM, so the CFTC has exclusive jurisdiction.”

The case arose after New Jersey sent Kalshi a cease-and-desist letter in early 2025, claiming that Kalshi’s sports event contracts violated the state’s Sports Wagering Law. The state argued that the outcome of sporting events is not “joined or connected” with a financial instrument, and therefore Kalshi’s contracts should not qualify as “swaps” under the CEA. The Third Circuit majority rejected this argument, finding that the CEA requires only that the relevant event be “associated with a potential financial consequence.” The court identified “numerous affected stakeholders, including sponsors, advertisers, television networks, franchises, and local and national communities” whose financial interests are tied to sporting event outcomes.

The panel further determined that Kalshi met its burden for preliminary injunctive relief, noting that New Jersey’s threatened civil and criminal penalties — punishable as crimes of the fourth degree with fines up to $100,000 — constituted irreparable harm.

Federal Government Intervenes in Arizona

Just days after the Third Circuit ruling, the US Department of Justice and CFTC moved on April 8 to block Arizona from enforcing its gambling laws against Kalshi. This intervention followed Arizona’s attorney general filing criminal charges against the platform on March 16, including 16 counts of illegal betting and wagering and four counts of election wagering.

In their preliminary injunction motion, the federal agencies asserted that the CEA “expressly and implicitly preempts state gambling laws as applied to CFTC-regulated markets and market participants” and that “event contracts offered by Kalshi and other CFTC-regulated [designated contract markets] — including event contracts where the underlying event relates to sports or politics — are ‘swaps’ under the plain meaning of the CEA.”

CFTC Chairman Michael S. Selig issued a statement noting that Arizona’s actions set a “dangerous precedent,” stating that “Arizona’s decision to weaponize preempted state criminal law against companies that comply with a comprehensive federal regime” cannot stand. The CFTC has also filed similar offensive suits against Arizona, Connecticut and Illinois, seeking declaratory judgments affirming the CFTC’s exclusive authority over event contracts.

The Broader Regulatory Context

As reported previously,[1] these developments follow a dramatic shift in the CFTC’s posture under Chairman Selig. In February 2026, the Commission withdrew the prior administration’s proposed rulemaking that would have broadly prohibited political and sports-related event contracts, with Selig characterizing the proposal as “the prior administration’s frolic into merit regulation.”

The CFTC has since issued a Prediction Markets Advisory (Letter No. 26-08) and an Advance Notice of Proposed Rulemaking seeking public comment on a comprehensive regulatory framework, with comments due April 30.[2] The agency has also signed a groundbreaking Memorandum of Understanding with Major League Baseball to establish a framework for cooperation and information sharing to protect market and game integrity.[3]

Additionally, on April 10, the CFTC announced the members of the Innovation Task Force (Release No. 9210-26), which will work with the Commission to develop a clear regulatory framework for innovators focused on crypto assets and blockchain technologies, artificial intelligence and autonomous systems, and prediction markets and event contracts. The Task Force is led by Michael J. Passalacqua and includes staff from various CFTC divisions, as well as individuals with extensive private-sector experience. Chairman Selig stated that “[t]he Innovation Task Force brings together a leading team that exhibits deep expertise and an enthusiastic commitment to deliver clear rules of the road for American innovators.”

Looking Ahead

The prediction markets industry now awaits several critical developments. Multiple federal circuits are addressing the preemption question, which suggests that the cases might go to the US Supreme Court.” Meanwhile, the CFTC’s forthcoming proposed rulemaking will, among other things, likely establish listing standards that could determine which event contracts receive streamlined approval and which face heightened scrutiny.[4]

For prediction market operators and market participants, this week’s developments confirm that prediction markets have arrived as a significant force in American finance — one that courts and regulators are now actively grappling with under existing derivatives law.