The Regulatory Map: Mounting Pressure on Prediction Markets; State Regulations

As regulatory concerns surrounding prediction markets, especially ETFs, have risen, the CFTC has mounted an aggressive legal campaign to assert exclusive federal authority over prediction markets, filing lawsuits against several states– including Wisconsin, New York, Arizona, Connecticut and Illinois– to stop them from applying local gambling laws to prediction market platforms.

            The CFTC holds that prediction-market platforms operate under federal, not state, jurisdiction because their event contracts are deemed commodity derivatives under the Commodity Exchange Act. The Commission is seeking injunctions against state regulation of performance-market platforms in an attempt to prevent inconsistent, state-by-state restrictions on the market. The CFTC made this move after several states filed lawsuits against performance-market platforms. States claimed that these platforms constituted unlawful casino-style gambling.

            Federal courts in New Jersey and Tennessee have ruled in favor of the CFTC’s exclusive jurisdiction over prediction markets, deeming them ‘swaps’ and barring states from interfering.

In April, a federal court issued a temporary restraining order against Arizona’s prosecution of a CFTC-regulated company. This decision indicates initial support for the federal position with regard to market regulations.

In Nevada, Maryland, and Ohio, courts have ruled that states retain their ‘police power’ to regulate gambling, even over federally licensed platforms, effectively establishing a pro-state stance. In these states, users may find access blocked or restricted by platforms in order to avoid state litigation, even if no bills have been passed.

            In most states, performance platforms remain accessible. The regulatory conflicts over these markets are anticipated to reach the U.S. Supreme Court by late 2026 or 2027 to resolve differing decisions over prediction market platforms.