The Commodity Futures Trading Commission has entered a growing legal fight over prediction markets, a move that places federal authority against state gaming laws and signals a shift in enforcement strategy under its current leadership.
Chairman Michael Selig said the agency filed a "friend of the court" brief to support Crypto.com in a case against regulators in Nevada. He framed the step as a response to what he called an "onslaught" of litigation from states that seek to limit platforms that offer event-based contracts tied to sports, elections, and economic indicators.
"Over the past year, American prediction markets have been hit with an onslaught of state-led litigation," Selig said in a video posted on X. "The CFTC will no longer sit idly by while overzealous state governments undermine the agency’s exclusive jurisdiction over these markets by seeking to establish statewide prohibitions on these exciting products."
I have some big news to announce… pic.twitter.com/3OBNTaOnIL
— Mike Selig (@ChairmanSelig) February 17, 2026
Legal fault lines widen between federal and state oversight
The dispute centers on whether prediction markets function as gambling platforms or financial exchanges. Companies such as Kalshi and Polymarket argue that their contracts fall under federal derivatives law and the Commodity Exchange Act. State regulators say the same products mirror sportsbook wagers and should comply with gaming rules.
Nevada regulators filed a complaint that describes sports-linked "event contracts" as gambling under state law. The state seeks to block operations without a gaming license and warns that unlicensed platforms threaten its regulated casino framework.
Kalshi moved the case to federal court and reiterated its position that the CFTC holds jurisdiction. Federal courts have issued mixed rulings. Some judges sided with states, while appeals continue.
Political pressure intensifies on both sides
State officials and federal lawmakers have entered the dispute with public statements and legislative moves. Utah Governor Spencer Cox criticized the CFTC position and vowed legal resistance.
"These prediction markets you are breathlessly defending are gambling—pure and simple," Cox wrote. "They are destroying the lives of families and countless Americans, especially young men. They have no place in Utah."
Senator Bernie Moreno backed Selig and called for regulatory clarity. Democratic lawmakers raised concerns about federal intervention. Senator Catherine Cortez Masto led a letter that urged the agency to abstain from pending cases tied to sports or conflict-based contracts. Senator Elizabeth Warren warned that the move could weaken state authority over gambling protections.
Rapid growth pushes regulation to the forefront
Prediction markets expanded fast over the past year. Kalshi reported that Super Bowl 60 contracts produced more than $1 billion in trading volume, a 2,700% increase from the previous year. The surge placed pressure on regulators as more states issued cease-and-desist orders or lawsuits. Challenges emerged in Massachusetts, Ohio, Maryland, New Jersey, and Tennessee.
Selig defended the markets as financial tools rather than wagers.
"The CFTC has regulated these markets for over two decades," he said. "They provide useful functions for society by allowing everyday Americans to hedge commercial risks like increases in temperature and energy price spikes, they also serve as an important check on our news media and our information streams."
Industry expansion draws new entrants and scrutiny
The dispute unfolded as major firms and political figures entered the sector. Coinbase filed lawsuits against regulators in Connecticut, Illinois, and Michigan over sports-event contracts developed through partnerships with Kalshi.
Policy shifts followed changes in Washington. The return of Donald Trump to office led to leadership changes at the CFTC and a reset in its stance toward event contracts. Earlier proposals that sought restrictions on political or conflict-related bets lost momentum. His son, Don Trump Jr., joined Kalshi as a strategic adviser and later joined the advisory board of Polymarket. Trump Media & Technology Group announced plans to enter the prediction markets sector.
Federal authority versus local control
The CFTC argues that Congress granted it exclusive authority over derivatives markets after the 2008 financial crisis. Its court brief states that event contracts qualify as swaps and fall under federal oversight. State regulators disagree and cite consumer protections and gaming tax structures as justification for local control.
The debate now extends beyond legal definitions. The outcome could determine whether prediction markets operate nationwide under a single federal framework or face a patchwork of state rules. Federal securities officials have also taken interest. The Securities and Exchange Commission warned that some event-based contracts may meet the definition of securities.
Selig closed his public remarks with a direct message to state authorities.
"To those who seek to challenge our authority in this space, let me be clear: We will see you in court."
The legal battles continue across multiple jurisdictions. Each ruling shapes the future of event contracts and the balance of power between federal regulators and state gaming boards.
Anastasiia G
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