40 states urge CFTC to leave sports betting to states

Forty state attorneys general and the District of Columbia sent a letter to CFTC Chair Michael S. Selig arguing that sports-related prediction markets are wagers and should remain regulated under state gambling laws rather than federal derivatives rules.

The coalition said contracts sold on designated contract markets mirror traditional sportsbook offerings and allow users to bet on game winners, point spreads, totals and individual player statistics. The letter stated that relabeling wagers as derivatives does not change the economic substance of the transactions, adding:

Traditional sports bets and sports-related event contracts offered on designated contract markets (‘DCMs’) have no meaningful differences.

The attorneys general challenged the view that the CFTC has exclusive authority over these products. Their filing argued swaps under the Commodity Exchange Act must be tied to events with financial, economic or commercial consequences that can be hedged, and that game outcomes and player performance do not create the measurable economic exposure derivatives are designed to address.

The letter listed state-level protections that, the coalition warned, could be weakened under a federal derivatives framework. It cited licensing rules, minimum age limits, voluntary exclusion programs, suspicious-activity reporting and restrictions aimed at preserving sports integrity. The letter also said, “States have the expertise, experience, and tools to regulate sports betting as they have for more than a century.”

The filing references recent federal court action involving Kalshi. A Tennessee federal court granted Kalshi a preliminary injunction on Feb. 19 after finding the company likely to prevail on its argument that certain event contracts qualify as swaps under the Commodity Exchange Act. On April 6, the Third Circuit affirmed an injunction against New Jersey, concluding that federal preemption likely shields Kalshi from state gambling enforcement.

The CFTC has also taken part in law-enforcement activity related to prediction markets. In April the agency joined federal prosecutors in an insider trading case accusing an Army soldier of using nonpublic government information to trade on a prediction market; regulators characterized the prosecution as a first-of-its-kind case.

The April 30 letter was signed by attorneys general from 40 states, including Ohio, Nevada, New Jersey, New York, Tennessee and California, and by the District of Columbia. The coalition asked the CFTC to refrain from asserting exclusive federal control over sports betting and to recognize the long-standing role states have played in regulating gambling harms such as addiction, underage play and improper wagering by insiders or athletes.