State And Federal Regulators Face Off Over Prediction Markets

While prediction markets continue to grow in popularity, the battle between state and federal regulators on who should police the markets continues to escalate. Recent actions by state regulators and the aggressive response by the Commodity Futures Trading Commission (CFTC) underscore the uncertain legal status of prediction markets and continue a growing wave of actions across the country. New York and Wisconsin are the latest states to challenge prediction markets as unlawful gambling under state law. On April 21, New York Attorney General Letitia James filed lawsuits against Coinbase Financial Markets and Gemini Titan, advancing the view—discussed in a prior Steptoe client alert—that sports-related event contracts constitute unlawful gambling under state law.¹ Wisconsin similarly filed lawsuits against multiple prediction market platforms alleging similar violations of its gambling laws.²

In response to these state actions, the CFTC has filed its own lawsuits, asserting that federal law provides it with exclusive jurisdiction over event contracts traded on designated contract markets.³ These cases highlight a critical question: how should prediction markets be classified and regulated? At the center of these disputes is a fundamental question: are prediction markets, which can consist of event contracts listed by CFTC-registered Designated Contract Markets (DCMs) and traded by individuals or retail persons to be regulated by the CFTC, or are they more akin to sports books which fall under the jurisdiction of state gambling regulations?

What Are Prediction Markets—and Who Regulates Them?

Prediction markets offer contracts—often referred to as event contracts—that allow participants to trade on the outcome of future events, such as elections, economic indicators, or sporting results.⁴ At a basic level, these products are a type of derivative: a financial contract whose value is tied to the occurrence or non-occurrence of a specified event.⁵ When traded on DCMs, these contracts should fall within the scope of the Commodity Exchange Act and are subject to oversight by the CFTC.⁶ In other words, they are regulated by the federal government.

At the same time, gambling, including sports gambling, is regulated at the state level. As the Supreme Court recognized in Murphy v. Nat'l Collegiate Athletic Ass'n, 584 U.S. 453, 479–80 (2018), Congress may not “commandeer” state legislatures by dictating how they structure their sports gambling laws. Against this framework, state regulators are taking the position that there is no practical distinction between federally regulated event contracts and traditional sports betting, particularly where the contracts are tied to sporting outcomes.

New York Moves from Warning to Action Against Prediction Markets

New York's lawsuits illustrate how states are operationalizing the view that prediction markets are gambling in disguise. The Attorney General has filed separate actions in New York County against Coinbase Financial Markets and Gemini Titan, each of which began offering event contracts in late 2025 and quickly expanded nationwide, including into New York.⁷ Notably, New York has directed its actions at newer market participants rather than more established prediction platforms such as Kalshi or Polymarket.

New York's theory is that these products are functionally indistinguishable from traditional sports betting and therefore fall squarely within New York's gambling prohibitions. However, unlike regulated sports wagering, the platforms permit participation by users as young as 18, in contrast to New York's minimum age of 21, and operate outside the state's licensing, consumer protection, and tax regime. The CFTC responded by filing its own lawsuit in the Southern District of New York claiming that New York's enforcement actions are preempted because they seek to regulate transactions already governed by the Commodity Exchange Act—an area under the federal government's exclusive jurisdiction.⁸ The CFTC also sought removal of the New York suits to federal court,⁹ though New York swiftly moved to remand.¹⁰

Wisconsin Expands the Crackdown with Multiple Suits Against Prediction Markets

Days after New York took action, Wisconsin followed with its own lawsuits filed in Dane County against multiple prediction market platforms, including Kalshi, Polymarket US, Crypto.com, and Coinbase. The complaints allege that these companies are facilitating illegal sports betting by allowing users to wager on the outcome of sporting events.¹¹ Though branded as event contracts, the state contends that this activity is functionally indistinguishable from gambling. The CFTC again pushed back by filing its own action against the State in the Eastern District of Wisconsin arguing that these markets fall within the CFTC's exclusive jurisdiction and that federal law preempts the State's attempt to shut them down.¹² Like in New York, the CFTC also sought to remove the pending state court litigation to federal court.¹³

CFTC Pushes Back to Defend Federal Jurisdiction

The CFTC's response to lawsuits by state regulators in New York and Wisconsin continues a recent pattern of aggressive pushback from federal regulators. Since the confirmation of CFTC Chair Michael Selig, the agency has made clear that it will not hesitate to challenge state efforts to regulate prediction markets, bringing similar suits in recent weeks against Arizona, Connecticut, and Illinois. Across these actions, the CFTC has consistently taken the position that event contracts traded on federally regulated exchanges are derivatives subject to exclusive federal oversight, and that state attempts to apply gambling laws to those products are preempted by the Commodity Exchange Act.¹⁴

For companies operating in—or considering entry into—the prediction markets space, the message is increasingly clear: although the CFTC views these products as federally regulated derivatives rather than sports betting, state regulators disagree and are not hesitating to target newer market entrants alongside market leaders. This growing divide suggests that increased scrutiny and further litigation is likely—and that the current state–federal conflict will persist until the Supreme Court or Congress provides clearer guidance on the regulatory boundaries governing prediction markets.

Footnotes

1. People v. Gemini Titan, LLC, No. 451603/2026, 2026 WL 1093027, at *1 (N.Y. Sup. Ct. Apr. 21, 2026); People v. Coinbase Fin. Mkts., Inc., No. 451604/2026 (N.Y. Sup. Ct. N.Y. Cnty. filed Apr. 21, 2026) (verified petition).

2. See State v. Kalshi, Inc. et al., No. 2026CV001284 (Wis. Cir. Ct. Dane Cnty. filed Apr. 23, 2026) (complaint); State v. Blockratize, Inc., No. 2026CV001285 (Wis. Cir. Ct. Dane Cnty. filed Apr. 23, 2026) (complaint); State v. Foris DAX Markets, Inc., No. 2026CV001286 (Wis. Cir. Ct. Dane Cnty. filed Apr. 23, 2026) (complaint).

3. United States v. New York, No. 1:26-cv-03404 (S.D.N.Y. filed Apr. 24, 2026) (complaint); United States v. Wisconsin, No. 2:26-cv-749 (E.D. Wis. filed Apr. 28, 2026) (complaint).

4. Commodity Futures Trading Comm'n, Understanding Prediction Markets and Event Contracts, https://www.cftc.gov/LearnandProtect/PredictionMarkets (last visited Apr. 29, 2026).

5. Commodity Futures Trading Comm'n, Contracts & Products, https://www.cftc.gov/IndustryOversight/ContractsProducts/index.htm (last visited Apr. 29, 2026). See, for example, CEA § 1a(47)(A)(ii).

6. Id.

7. Gemini Titan, No. 451603/2026, ¶ 5; Coinbase Fin. Mkts., No. 451604/2026, 4.

8. United States v. New York, No. 1:26-cv-03404 (S.D.N.Y. filed Apr. 24, 2026) (complaint).

9. Notice of Removal, People of the State of New York v. Gemini Titan, LLC, No. 1:26-cv-03318 (S.D.N.Y. Apr. 22, 2026); Notice of Removal, People of the State of New York v. Coinbase Financial Markets, Inc., No. 1:26-cv-03300 (S.D.N.Y. Apr. 21, 2026).

10. Notice of Motion to Remand, People of the State of New York v. Gemini Titan, LLC, No. 1:26-cv-03318 (S.D.N.Y. May 1, 2026); Notice of Motion to Remand, People of the State of New York v. Coinbase Financial Markets, Inc., No. 1:26-cv-03300 (S.D.N.Y. May 1, 2026).

11. Kalshi, No. 2026CV001284; Blockratize, No. 2026CV001285; Foris DAX Mkt., No. 2026CV001286.

12. United States v. Wisconsin, No. 2:26-cv-00749 (E.D. Wis. filed Apr. 28, 2026) (complaint).

13. Notice of Removal, State of Wisconsin v. Kalshi Inc., No. 3:26-cv-00378 (W.D. Wis. Apr. 24, 2026); Notice of Removal, State of Wisconsin v. Blockratize Inc., No. 3:26-cv-00375 (W.D. Wis. Apr. 24, 2026); Notice of Removal, State of Wisconsin v. Foris DAX Markets, Inc., No. 3:26-cv-00381 (W.D. Wis. Apr. 24, 2026). As of the publication date, the State of Wisconsin had not moved for remand.

14. Press Release No. 9206-26, CFTC Sues Trio of States to Reaffirm Its Exclusive Jurisdiction Over Prediction Markets (Apr. 2, 2026), https://www.cftc.gov/PressRoom/PressReleases/9206-26.

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