The Commodity Futures Trading Commission has issued a second warning this year to prediction-market operators over broad, template-style self-certifications for event contracts, as its July 27 deadline for proposed event-contract rules nears. According to the latest guidance, the agency's Division of Market Oversight stated that registered exchanges must provide the terms, settlement method, data sources and compliance analysis for each contract they plan to list. The CFTC warned that "broad, template-style certifications should not be submitted," as some exchanges had submitted broad certifications covering many possible versions of an event contract without including terms and conditions for each version. The agency emphasized that one filing cannot cover an open-ended set of possible contract variations without enough product-level detail, limiting staff's ability to review settlement rules, source data and manipulation controls.
Congress is actively considering whether sports events contracts on prediction markets should continue under Commodity Futures Trading Commission (CFTC) oversight or be regulated under traditional sports betting guidelines. As reported by TNND, this question has become increasingly contentious as states, the industry, and federal regulators battle over jurisdiction. Rep. Dusty Johnson (R-S.D.) highlighted the central challenge, stating "To many Americans, these products look an awful lot like sports betting. To others, they're an innovative financial product that can help aggregate information and provide insight into future events. Drawing that line and determining whether our laws and regulators are equipped to do so is the central driving question before us today." The gaming industry has called on Congress to increase regulations, with Christopher Cykle, senior vice president of government relations for the American Gaming Association, telling lawmakers that "Sports betting on prediction markets like Kalshi and Polymarket makes a mockery of congressional intent, stripping your constituents of important consumer protections and costing your communities a fortune in lost tax revenue."
Kalshi and Polymarket are engaged in an unprecedented legal conflict spanning at least twelve states, with the core question being whether their event contracts are CFTC-regulated derivatives beyond state reach or unlicensed sports betting subject to state gambling laws. According to reports, roughly 90% of Kalshi's trading volume and about half of Polymarket's is sports-related, making sports contracts the primary revenue driver for both platforms. The platforms argue their contracts are federally licensed commodity futures under the Commodity Exchange Act, while state gaming regulators from New York to Nevada have issued cease-and-desist orders and demanded platforms void unsettled sports trades by deadlines. Washington lawmakers have also alleged that prediction market sites are violating state laws and specifically targeted marketing campaigns using social media influencers to reach 18-21 year-olds. Both platforms sought emergency injunctions preventing enforcement of state gambling laws in the Ninth Circuit and were denied, clearing the path for state-level crackdowns.
The Commodity Futures Trading Commission has escalated its involvement by suing Connecticut, Arizona, and Illinois in April 2026, asserting that state enforcement invades exclusive federal jurisdiction. As reported, Chairman Michael Selig publicly promised to defend market participants against what he called overzealous state regulators, with the agency functioning under a single confirmed commissioner. This represents an extraordinary posture for a federal agency to litigate against state governments on behalf of its registrants, with the CFTC's litigation calendar becoming an extension of the industry's interests. The CFTC has since countersued multiple states including Arizona, Illinois, and Connecticut, with the agency granted a temporary restraining order (TRO) and federal judge permanently blocking Arizona from pursuing criminal charges against Kalshi, though not all appeals have been exhausted. The agency has also pushed back against state efforts to restrict prediction markets, including intervening in Michigan's lawsuit against Kalshi after a judge temporarily barred the company from offering sports event contracts in the state.
The legal landscape reveals genuine split outcomes across jurisdictions. Federal courts have blocked state enforcement in Tennessee, Arizona, Ohio, and Connecticut, with the Ninth Circuit granting an injunction protecting the preemption theory in the CFTC's case. However, New York, Massachusetts, Nevada, and Maryland have produced state wins, with Massachusetts securing a preliminary injunction blocking Kalshi and Nevada's Gaming Control Board holding one against Polymarket. Rhode Island's attorney general sued both platforms in May, while Maryland broke the early pro-federal streak with a ruling that state gambling law reaches the contracts. Minnesota became the first state to officially ban prediction markets on May 18, making it a felony to host, advertise, or provide supportive services for platforms like Kalshi or Polymarket, with the law taking effect August 1, though the CFTC filed suit seeking an injunction on May 19. The gaming industry has argued that the CFTC does not have sufficient resources or regulations in place to effectively regulate prediction markets' sports offerings, with David Bean, chairman of the Indian Gaming Association, stating "The CFTC is short-staffed and lacking in resources, so they simply don't have the regulatory system in place. They rely on these prediction market companies to self-certify."
The prediction market industry has experienced explosive growth, with Kalshi recently announcing it had added 3 million new users to its platform over the last month, highlighting how quickly the market has expanded. According to TNND, this rise in popularity among prediction markets that offer sports contracts has fueled bipartisan concern on Capitol Hill. Combined monthly global trading volume on prediction markets was about $24 billion in April 2026, compared to about $14 billion per month wagered at legal U.S. sportsbooks in 2025, according to Pew Research Center analysis. More recent testimony cited by crypto.news placed 2025 trading volume across CFTC-registered prediction markets above $25 billion, with daily listings on one large platform rising from about 1,600 in April 2025 to roughly 162,000 in April 2026. Former CFTC officials defended the agency's oversight framework, with former CFTC general counsel Robert Schwartz stating "It's been able to be flexible and adapt over time as new financial products have come online, and it has partnerships with the exchanges, with the National Futures Association, that are a force multiplier." However, Rep. Jill Tokuda (D-Hawaii) questioned whether this represents "regulatory arbitrage," stating "We have a higher standard for tribes and states that have taken the time and invested significant amount of resources to make sure that the ill effects of gaming do not fall on its people, and we have a self-regulatory system that, quite frankly, is a danger to our people."
