The U.S. government has initiated legal action against Arizona, Connecticut, and Illinois, aiming to prevent these states from regulating prediction markets. The government contends that oversight of these markets is solely a federal responsibility.
This lawsuit, filed during President Donald Trump's administration, marks a significant move by the Commodity Futures Trading Commission (CFTC) to challenge state gaming regulators' authority over operators that offer what are known as event contracts.
According to federal officials, the states' attempts to impose regulations on platforms like Kalshi, Polymarket, Crypto.com, and Robinhood breach the CFTC's exclusive power over national swaps markets.
Event contracts allow users to speculate on the outcomes of various events, including sports games and elections.
In its complaints against the states, the U.S. government asserted that Connecticut and Illinois misunderstand the nature of these contracts and claimed that permitting state regulation would contravene the U.S. Constitution.
The government stated, “This court should put an end to the ongoing efforts by defendants to undermine the uniform application of federal law.”
The lawsuits follow cease-and-desist orders issued by state regulators targeting designated contract markets and futures commission merchants, after authorities indicated that these platforms facilitated unlicensed sports betting.
Arizona has escalated matters by filing criminal charges against Kalshi in March, alleging that it enabled illegal gambling and allowed bets on election outcomes.
CFTC Chairman Michael Selig emphasized that the agency will vigorously defend its jurisdiction, stating, “The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators.”
The defendants in the case include the governors and attorneys general of the respective states: Katie Hobbs and Kris Mayes from Arizona, Ned Lamont and William Tong from Connecticut, and JB Pritzker and Kwame Raoul from Illinois.
State officials have strongly opposed the federal government's actions, framing their regulatory efforts as essential for consumer protection. William Tong remarked, “The Trump Administration is recycling industry arguments that have been rejected in district courts across the country,” adding, “We will aggressively defend Connecticut’s commonsense consumer protection laws.”
A spokesperson for Pritzker accused the federal administration of prioritizing the interests of prediction market companies over consumer safety, stating that these companies expose Illinois residents to gaming products lacking fundamental consumer protections and oversight.
While the CFTC classifies these contracts as financial instruments under federal jurisdiction, many states and tribal gaming regulators argue that they are akin to gambling products that should be regulated by state law, especially given concerns about underage gambling and inadequate safeguards.