The US government has made a clear stance that sports betting can be regulated under financial laws rather than gambling laws. In a recent court filing, the Commodity Futures Trading Commission and the Department of Justice have requested a federal court to prevent Arizona from enforcing its state gambling laws against Kalshi, a prediction market operator.
The agencies argue that contracts related to sports, elections, and other real-world events are financial derivatives, or 'swaps,' which fall under federal jurisdiction. If the courts agree, this could shift control of the rapidly growing market from states to the federal government, allowing prediction platforms to operate nationwide under a unified set of rules. However, the case centers around a fundamental question: what defines a bet?
Arizona and several other states consider contracts on sports outcomes to be equivalent to traditional wagers, which should be regulated as gambling with licensing requirements, age restrictions, and consumer protections. Arizona has taken it a step further by filing criminal charges against Kalshi under state betting laws, with an arraignment set for April 13. Federal regulators, on the other hand, see it differently. They argue that the structure of the contracts, not the events they track, is what matters.
Since the payouts depend on the occurrence of a future event with economic consequences, these products fall under the same legal framework as derivatives tied to commodities or interest rates. This interpretation would place prediction markets firmly under the Commodity Exchange Act, where the CFTC claims to have 'exclusive jurisdiction.' It would also limit the ability of individual states to shut down or restrict these platforms, which regulators warn would create a fragmented system. The legal battle has been escalating for months, resulting in conflicting rulings.
A federal appeals court in New Jersey recently ruled in favor of Kalshi, finding that its sports contracts are presumptively allowed under federal law unless the CFTC intervenes. However, courts in other jurisdictions have been more receptive to state arguments, allowing enforcement actions to proceed. In its filing, the government warned that allowing states to prosecute federally regulated exchanges would undermine a national market that Congress intended to oversee at the federal level.
If the courts ultimately accept the CFTC's position, prediction markets could operate nationwide under a single federal framework, effectively bypassing the state-by-state system that governs sports betting today. If they reject it, these products could be forced into existing gambling regimes or shut down altogether in key jurisdictions. For now, the federal government is taking a broad view of its authority, arguing that a contract on the Super Bowl is not fundamentally different from one tied to oil prices or interest rates. The courts must now decide if this comparison holds.