The battle between state sports betting regulators and prediction market operators took an unprecedented turn when the U.S. government sued three states on Thursday.
Key Takeaways
- CFTC challenges the actions of Arizona, Connecticut, Illinois against registered designated contract markets.
- Commission deems its national framework preferable to fragmented state regulations.
- CFTC chair vowed in February "we will see you in court."
The Commodity Futures Trading Commission (CFTC) filed a lawsuit in a Chicago court that alleges that the Prairie State’s cease-and-desist orders against multiple prediction market platforms violate the federal agency’s “exclusive jurisdiction” over regulation of trading exchanges, granted by Congress in 1974.
The court filing names the state, Gov. JB Pritzker, Attorney General Kwame Raoul, and five members of the Illinois Gaming Board (IGB), which regulates sports betting. This marks the first time that a federal agency has challenged a state regulator over prediction markets in court.
The CFTC also filed lawsuits against Arizona and Connecticut, challenging their actions against registered designated contract markets.
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Requesting relief
The CFTC requests declaratory and injunctive relief, prohibiting states from taking any punitive measures against prediction market companies that offer contracts in their state.
Illinois sent cease-and-desist orders to Kalshi, Robinhood, and Crypto.com in April 2025, and another to Polymarket earlier this year, with regulators threatening to take legal and civil action against the unlicensed operators.
“Illinois’s attempt to shut down federally regulated DCMs (Derivative Contract Markets) intrudes on the exclusive federal scheme Congress designed to oversee national swaps markets,” the plaintiffs said in the court filing. “Prompted by the evolution of national financial markets and repeated conflicts with state law, Congress enacted the CEA(Commodity Exchange Act), granting the CFTC exclusive jurisdiction to regulate those markets and enacting a comprehensive federal regulatory framework that preempts state laws that attempt to regulate the operation of, or transactions on, CFTC-regulated exchanges.
“This comprehensive federal regulatory scheme preempts Illinois law as applied to event contracts traded on federally regulated exchanges.”
Swaps, not wagers
Illinois is one of many regulated sports betting states that have tried to keep prediction market platforms from offering unlicensed sports event contract trading on their exchanges.
Prairie State regulators deem those contracts as illegal gambling, and requested the prediction market companies obtain gaming licenses to continue operating there.
The CFTC challenges that idea in the lawsuit, claiming that contracts such as sports, politics, climate, economics, and other markets are derivatives that can be traded on as future events. The CFTC calls the trading “swaps,” and not “wagering.”
“By prohibiting these DCMs from operating in Illinois without an Illinois license or by conditioning their operation on compliance with Illinois laws and regulations, Defendants directly interfere with Plaintiffs’ authority pursuant to the federal scheme imposed by Congress through the CEA,” the CFTC argues.
More to come?
This is the CFTC’s first legal action against specific states since chair Michael Selig said in February that “those who seek to challenge our authority in this space, let me be clear: We will see you in court.”
Selig vowed to protect prediction market platforms while also creating a modernized regulatory framework for trading exchanges.
“The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators,” said Selig. “This is not the first time states have tried to impose inconsistent and contrary obligations on market participants, but Congress specifically rejected such a fragmented patchwork of state regulations because it resulted in poorer consumer protection and increased risk of fraud and manipulation.”
Other entanglements
Meanwhile, prediction market news has been made elsewhere. Nevada and Massachusetts have already won court battles against Kalshi, which has filed more than a dozen lawsuits against regulators. The latest came last month against Arizona and Iowa.
Washington’s attorney general accused Kalshi of skirting the state’s gambling laws in a lawsuit.
Prediction market platforms have also come under fire in recent months for allegedly allowing insider information trading, which has sparked a federal investigation and a proposed bill to ban public officials from profiting from non-public information.
A dozen states are considering bills that could restrict or prohibit prediction markets.
States that have introduced prediction market restriction/ban bills this year (more can/will follow):
— Ryan Butler (@ButlerBets) March 25, 2026
-California
-Connecticut
-Georgia
-Hawaii
-Illinois
-Kentucky
-Minnesota
-New Jersey
-New York
-Tennessee
-Virginia
-Vermont
