Prediction Markets Litigation Tracker - Mapping the Regulatory Battle in the US

The CFTC is an independent government agency that regulates prediction markets and similar derivatives at the federal level (under the Commodity Exchange Act). Theoretically, this entity holds exclusive jurisdiction over prediction market contracts, preventing states from banning exchanges outright. Court cases challenging this have so far produced mixed results.

Although the CFTC has the authority to regulate derivatives and designated contract markets (DCMs) of this type, the US Constitution also affords “police powers” to help safeguard public health and morality. This includes the right to prohibit betting and gaming, and some states (such as Utah and Nevada) have already utilized these powers to restrict trading and specific contract types.

The Indian Gaming Association (IGA) echoes the idea that trading sports outcomes and events on prediction markets is akin to traditional betting. In selected states, the Indian Gaming Regulatory Act (IGRA) dictates that tribes hold exclusive or negotiated rights to all Class III gaming verticals, which include sports betting. This is currently an obstacle to legalizing prediction markets in jurisdictions like California.

The state of North Carolina has recognized the authority of the CFTC in relation to the regulation of prediction markets, and imposed a 6% tax on operators’ net trading revenue as part of their regulatory framework. However, Kentucky has implemented a much higher tax levy of 14.25% on prediction market transaction fees, as part of a wider set of measures to restrict exchanges.

Restriction to Prediction Market use: Severe

Considered to be a landmark federal lawsuit, this case saw KalshiEX look to prevent the New York State Gaming Commission from enforcing the jurisdiction’s gambling laws against the exchange. 

However, Kalshi’s Federal preemption argument and preliminary injunction were dismissed by District Judge Analisa Torres on July 7th, who found that the state’s gambling laws were not preempted by the Commodities Exchange Act (CEA). 

KalshiEX subsequently appealed the ruling and moved the case to the U.S. Court of Appeals for the Second Circuit. This is one of the nation’s highest appellate courts, and the final ruling could create a significant legal precedent for how prediction markets are regulated. It may also undermine the core argument of Federal preemption.

If the case also creates a further, high-profile split between the Third and Second Circuits, the US Supreme Court may ultimately be required to adjudicate and issue a final, definitive ruling.

Restriction to Prediction Market use: Light

In February 2025, the KalshiEX sued the New Jersey Division of Gaming Enforcement. This was to seek an injunction, which would prevent the DGE from further enforcement action following a formal cease and desist letter.

A preliminary injunction was granted in April 2025, and this was upheld 12 months later by a Third Circuit Court Judge following an appeal.

While further appeals are expected this year, the ruling delivered a huge victory to the prediction market industry. This preempted the judgment in New York and was the first Federal appellate-level ruling on prediction markets.

This case highlighted the challenge that states face when attempting to restrict exchanges with local gambling laws, even in jurisdictions where robust regulatory frameworks exist.

Restriction to Prediction Market use: Severe

In July 2025, three Indian Gaming tribes in CA filed a suit against the KalshiEX and Robinhood exchanges. This claimed that these defendants were directly violating IRGA and state gaming compacts by offering illegal sports betting on reservations.

This case also raised concerns that prediction market exchanges were allowing their traders to bypass geolocation restrictions using their smartphones.

However, a Federal judge decided against issuing a preliminary injunction, stating that the contracts offered did not violate existing compacts. This decision has since been appealed by the accusing parties, with initial oral arguments heard in the 9th Circuit Court on July 10th.

This case has potentially huge ramifications, with 29 states home to federally recognized tribes and operating under the protection of IGRA (including California, Arizona, Michigan, and Nevada). The final ruling will have a huge impact on contract eligibility across a large number of jurisdictions.

Restriction to Prediction Market use: Severe

In a surprising turn of events, the CFTC filed a lawsuit against the state of Minnesota on May 19th, 2026. This sought to block a state law signed by Governor Tim Waltz, which would have made “operating or assisting” prediction market exchanges a criminal felony.

This lawsuit was unprecedented in terms of its scale and ferocity, and it resulted in a preliminary injunction being issued on July 27th. As a result, the legislation was temporarily blocked, just days before going into effect on August 1st.

This represented another huge win for prediction markets exchanges. According to U.S. District Judge Katherine Menendez in Minnesota, KalshiEX and Polymarket were likely to succeed in any challenges to the proposed law, which would have caused “irreparable harm” to all affected operators.

Minnesota Attorney General Keith Ellison was unhappy with the decision, but has not filed an immediate appeal. In fact, she has discussed potentially scaling back the legislation to focus on specific contracts and Federal swaps. So, the case may provide a regulatory path forward for prediction markets nationwide.

10 states (including New York, Arizona, Ohio, and New Jersey) have issued cease and desist letters to a number of prediction market exchange operators. Each of these letters alleges that prediction market operators are offering unlicensed online gambling and sports betting. Some also list election-based event contracts as being problematic, while NJ requested exchanges to cease offering March Madness trades in 2026. 

Various states have passed legislation to legalize, restrict or study prediction markets. Connecticut Governor Ned Lamont has signed HB 5229, for example, which requested a collaborative study into the effects of prediction markets on residents. As we’ve previously touched on, Minnesota Governor Tim Waltz also signed SF 4760 into law, initially making the operating or assisting of prediction markets a felony.

Most legislative initiatives have sought to impose tax levies on operators, from 6% of net trading revenue in NC to 14.25% transaction fees in Kentucky (which has been deemed punitive by exchanges). In Illinois, an executive budget proposal was signed on June 1st, with this set to introduce new tax levies on prediction market exchanges.