Forty-four US states have challenged a proposed federal rule on sports prediction markets, accusing the Commodity Futures Trading Commission (CFTC) of overstepping its legal remit and encroaching on territory traditionally controlled by state gambling regulators.
In a detailed letter filed on Monday, attorneys general from 44 states, led by Ohio Attorney General Andy Wilson, urged the CFTC to withdraw and rewrite its planned amendments to Rule 40.11. They argue the agency’s framework for sports-related prediction markets exceeds the authority granted by the Commodity Exchange Act and must be replaced with a version that, in their words, aligns with both federal law and the US Constitution.
The intervention came as the public comment period on the CFTC’s proposed event contract rules closed, adding substantial opposition to the regulator’s attempt to create a nationwide structure for contracts linked to gaming and other sensitive subjects. The proposal has already prompted responses from sports leagues, trading venues, legal academics and crypto-industry stakeholders.
“The CFTC in the Proposed Rule goes well beyond its statutory authority,” the attorneys general wrote, calling on the Commission to reconsider and draft a new rule they say should stay within the limits of the Commodity Exchange Act and constitutional constraints.
States say gambling oversight is theirs
The attorneys general contend that the CFTC’s plan would significantly widen federal oversight of gambling, an area they emphasise has historically been managed by the states, including the regulation of sports betting.
Their letter stresses that, while states have long supervised gambling activity, the federal government has generally not assumed direct regulatory control. They also warn that the proposed rule would effectively hand the CFTC power over a field with “significant economic and political implications” despite what they describe as an absence of clear authorisation from Congress.
That position runs counter to the CFTC’s long-held reading of the Commodity Exchange Act. In multiple court cases involving sports prediction markets, the Commission has argued that federally listed derivatives fall within its exclusive jurisdiction and cannot be subjected to conflicting state gambling laws.
Courts split over state bans
The dispute has sharpened as sports-related event contracts offered by prediction market platforms spread across the US, forcing courts to grapple with where federal derivatives law stops and state gambling powers begin.
Recent lawsuits have produced sharply different outcomes for operators. On Monday, a federal judge temporarily barred Minnesota from enforcing its newly enacted ban on prediction markets, allowing Kalshi and Polymarket to continue offering contracts there while litigation continues.
Just hours later, a separate federal judge in New York again declined to halt the state’s enforcement of its gambling statutes against Kalshi, meaning the company was denied the preliminary relief it had requested.
Other states have also moved against sports event products. Last month, a Michigan judge issued a temporary restraining order preventing Kalshi from listing sports-related contracts in that state. A Washington court reached a similar view last week, temporarily blocking the platform after finding that its offerings were likely to constitute illegal gambling under Washington law.
Those rulings follow an earlier legal setback for Kalshi in New York. Earlier this month, Judge Analisa Torres rejected the firm’s bid for a preliminary injunction, allowing New York’s gambling enforcement actions to proceed while the case is heard. Sports law attorney Daniel Wallach said then that the decision could complicate Kalshi’s efforts elsewhere because the court concluded that the CFTC’s exclusive jurisdiction under the Commodity Exchange Act is not absolute and that gambling regulation remains a core state function.
North Carolina breaks with majority
Amid the broader pushback, North Carolina has taken a markedly different route. Senate Bill 257, signed into law on 7 July, explicitly recognises the CFTC’s exclusive federal authority over prediction markets and will allow federally registered platforms to operate in the state from 1 January 2027.
The legislation also introduces a 6% tax on trading fee revenue generated from North Carolina residents using those markets, while separately raising tax rates on licensed sports betting operators.
NFL presses for stricter federal oversight
The attorneys general’s challenge landed only days after the National Football League urged the CFTC to tighten, rather than soften, its planned oversight of sports prediction markets.
In a 27 July letter obtained by The Closing Line, the NFL told CFTC chair Michael Selig that the proposed event contract regime “contains useful safeguards” but, in the league’s view, still falls short in protecting game integrity and consumers.
Among a series of recommendations, the NFL called for stricter limits on contracts that could be affected by individual players or officiating decisions, longer regulatory review windows before new contracts are approved, clear prohibitions on the use of material non-public information and mandatory league-specific lists of barred participants. The league also reiterated support for a ban on margin trading in sports contracts, tighter advertising rules and a minimum participation age of 21.
While the NFL has adopted a cautious stance, other major US competitions have taken a different line. The National Hockey League and Major League Baseball have both entered into partnerships with prediction market platforms, underlining the varied approaches among leading sports organisations as the sector grows.
Details of CFTC proposal under scrutiny
The attorneys general’s submission effectively closes another phase of the CFTC’s public consultation on changes to Rule 40.11, which would create a formal review system for event contracts tied to gaming, war, terrorism, assassination and unlawful conduct.
Under the draft rule, the Commission would first decide whether a given product qualifies as an event contract. It would then assess whether the contract’s settlement depends on any of the activities identified in the Commodity Exchange Act. Products meeting both criteria would be subject to a public-interest review before regulators decide whether they can be listed.
In a separate move shortly before the comment deadline, the CFTC’s Division of Market Oversight reminded exchanges not to file sweeping, template-style self-certifications that cover broad categories of event contracts. Instead, designated contract markets have been told they must provide contract-by-contract information on settlement mechanisms, legal analysis, data sources and product terms so each submission can be assessed individually.
The clash between state officials and the CFTC now leaves the future of federal oversight of prediction markets – particularly those linked to sport – to be shaped by upcoming regulatory decisions and a growing body of conflicting court judgments across the US.
