Kalshi and Polymarket, two major prediction market platforms, are currently embroiled in active legal conflicts with over twelve U.S. states, involving cease-and-desist orders, lawsuits, injunctions, and criminal charges. Arizona has charged Kalshi criminally, while states including Massachusetts and Nevada have issued injunctions against the platforms. The core issue revolves around whether their event contracts qualify as federally regulated derivatives or unlicensed sports betting under state laws.

Jurisdictional Clash Between Federal and State Authorities

The platforms argue their contracts fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC), which regulates derivatives. Approximately 90% of Kalshi’s transaction volume consists of sports-related events, which many state gaming regulators classify as illegal betting. In response, the CFTC has taken an unusual stance by suing Connecticut, Arizona, and Illinois to uphold its regulatory authority and defend Kalshi and Polymarket, despite operating with only one confirmed commissioner.

Federal courts have delivered mixed rulings: judges in Arizona, Tennessee, Ohio, and Connecticut have blocked state enforcement actions, whereas courts in New York, Massachusetts, Nevada, and Maryland have sided with state regulators. also three California tribal entities have brought cases to the Ninth Circuit. This patchwork of decisions reflects starkly different legal statuses depending on state boundaries, rendering the platforms simultaneously legal, illegal, criminal, and constitutionally protected depending on location.

The implications of this conflict extend beyond prediction markets. The legal question of federal preemption over state gambling and consumer protection laws will influence the regulatory framework for crypto markets under consideration in the ongoing CLARITY-era legislation.

Kalshi reported processing over $1 billion in volume on the Super Bowl alone this year, highlighting the scale and economic significance of these platforms. The CFTC’s litigation efforts emphasize the agency’s commitment to defending its jurisdictional authority despite limited resources.

This content is for informational purposes and does not constitute financial advice.