A coalition of 44 state attorneys general has challenged the Commodity Futures Trading Commission’s authority to regulate sports-related event contracts on prediction market platforms, arguing the federal agency is overstepping its statutory powers.
The letter, led by Ohio Attorney General Andy Wilson, arrived Monday as the public comment period closed on the CFTC’s first proposed rule governing prediction market regulation. The measure focuses primarily on sports offerings that have driven explosive growth on these platforms.
“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 attorneys general wrote. They urged the commission to “start afresh” and clarify that sports bets fall under state law rather than federal derivatives regulation.
Only five states—Florida, Georgia, New Hampshire, Missouri, and Texas—did not join the letter.
Derivatives or Gambling?
The jurisdictional dispute intensified last year as prediction market volumes surged, fueled largely by sports-related contracts. The 2026 FIFA World Cup pushed platform activity to unprecedented levels, according to CNBC.
At the heart of the conflict lies a fundamental disagreement over classification. The CFTC and prediction market platforms maintain that event contracts are swaps—derivatives subject to federal oversight. States counter that sports-related contracts closely resemble sports betting, which falls squarely within their regulatory domain.
The CFTC’s June draft rule attempted to draw boundaries around controversial sports contracts, including identifying which ones might be prohibited. The proposal crafted a definition of “gaming” as an activity done for recreation or entertainment, governed by rules and based on measurable outcomes determined by skilled activity.
Industry Split on Federal Approach
Not everyone in the financial industry agrees with the CFTC’s framework. In its own comment letter, derivatives marketplace CME Group took issue with the gaming definition.
“By defining ‘gaming’ as the sport itself rather than the financial wagering on the sport, the CFTC’s definition suggests the [Commodity Exchange Act] is preempting state sports regulations, which is a striking overreach,” wrote CME general counsel Jonathan Marcus.
The criticism carries particular weight given that CME acts as the CFTC-regulated exchange for sportsbook FanDuel’s sports prediction markets.
Meanwhile, Rothera, a prediction market platform that launched in June, supported the commission’s approach. CEO Thomas Chippas argued the definition should focus on the activity itself rather than wagering, noting that a definition centered on “risking something of value” would encompass every event contract.
Courts Delivering Mixed Signals
The CFTC has invoked federal preemption in court proceedings against nine states to defend what it views as exclusive jurisdiction over prediction markets. However, recent court decisions have yielded contradictory outcomes, underscoring the unsettled nature of the legal landscape.
A Michigan judge blocked platform Kalshi from offering sports bets in the state in late June. Just weeks later, a federal judge in Minnesota temporarily halted a statewide ban on prediction markets that was set to take effect Saturday.
These diverging rulings reflect the complexity of applying existing regulatory frameworks to a market category that has evolved rapidly, particularly as platforms have expanded beyond traditional financial derivatives into entertainment and sports.
Observers of the prediction market space widely expect the Supreme Court will ultimately determine which level of government holds regulatory authority over sports-related event contracts. Until that resolution, states and the CFTC appear headed for continued legal battles as platforms navigate a patchwork of state-level restrictions and federal regulatory efforts.
Source: www.cnbc.com — https://www.cnbc.com/2026/07/28/44-states-say-cftc-has-no-authority-over-sports-prediction-markets.html
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