Lawsuits test whether prediction markets fall under state gambling rules or federal oversight

A series of lawsuits has placed state gambling regulations and federal derivatives law on a collision course over prediction market contracts. For decades, states have decided which forms of wagering are permitted inside their borders. The Commodity Exchange Act, expanded by the Dodd-Frank Act, gives the Commodity Futures Trading Commission authority over futures, options, and swaps.

The current cases ask whether contracts that pay out on real-world events qualify as swaps under federal law or as gambling under state law.

Federal and state positions The CFTC has sued seven states—Arizona, Connecticut, Illinois, Wisconsin, Minnesota, New York, and Rhode Island—challenging their enforcement actions against prediction markets. It has also entered cases in Ohio, Massachusetts, and Nevada.

CFTC Chairman Michael Selig stated in April that states cannot override federal authority to regulate these contracts. Connecticut Attorney General William Tong said the contracts constitute unlicensed gambling under state law and that Connecticut will defend its consumer-protection statutes.

Utah Governor Spencer Cox, whose state maintains a broad gambling ban, said in February that prediction markets are “gambling—pure and simple” and pledged to use all available resources to oppose federal preemption. A bipartisan group of 41 state attorneys general wrote to the CFTC in April, asserting that the agency lacks exclusive jurisdiction over sports-related event contracts.

Ohio Attorney General Dave Yost stated that states retain the right to protect residents from gambling regardless of how the activity is labeled.