If you have spent any time online in the past two years, you may have noticed a new type of platform appearing alongside traditional sportsbooks and stock-trading apps. Companies like Polymarket and Kalshi run prediction markets, where anyone can buy and sell contracts based on the outcome of real-world events. For example, you might find contracts about whether it will rain in Los Angeles tomorrow or who will win the NBA championship next year. On these sites, for example, contracts can cost between one cent and ninety-nine cents, with the price showing how likely people think the event is. If you buy a contract for forty cents and the event happens, you get a dollar. If it does not, you lose your money. This model has become very popular. During the 2026 Super Bowl, Kalshi reported over $1 billion in trading volume, and about 90% of its trades were on sports bets.
This surge in popularity has caught the eye of state regulators and now the White House. The Trump administration is supporting Kalshi and Polymarket in a major legal fight over who has the right to regulate these platforms. Several states have sued the companies, claiming they are running unlicensed casinos or gambling businesses against state laws. The most notable case is in Nevada, where the Nevada Gaming Control Board took action and secured a temporary restraining order to stop Kalshi from operating there. Kalshi has appealed this decision to the U.S. Court of Appeals for the Ninth Circuit.
The Commodity Futures Trading Commission (CFTC) has now stepped in. Michael Selig, the Trump-appointed chairman of the CFTC, filed a brief supporting the prediction market companies and said the CFTC has exclusive federal authority over these markets. In a Wall Street Journal opinion piece, Selig wrote that the CFTC “will no longer sit idly by while overzealous state governments undermine the agency's exclusive jurisdiction.” He argues that prediction market contracts are similar to other futures and derivatives, which the CFTC has regulated for decades, and that states cannot override federal authority.
Those who oppose this argue that although these platforms in fact provide contracts based on future events, the majority of their activities are simply ordinary sports betting, a form of gambling that has always been overseen by the state gambling commissions. They also highlight that most prediction markets allow people as young as eighteen to take part, whereas state-regulated gambling generally requires individuals to be twenty-one. On July 31, 2026, New York Governor Kathy Hochul and Attorney General Letitia James brought legal action against Kalshi EX, LLC for running an illegal and unlicensed gambling platform via its prediction markets, the Office of the Attorney General claiming that such activities satisfy the legal definition of gambling and are accessible to users below the state's minimum gambling age of twenty-one. The lawsuit aims to compel Kalshi to give up all of its illegal profits, pay restitution to affected consumers, and pay treble fines as part of a wider state initiative to target unlicensed gambling operations.
For people in New York, this issue is very real. New York has some of the most active online bettors in the country and is home to major financial exchanges that the CFTC already oversees. If the federal government wins, any New Yorker who is eighteen or older could use prediction market platforms freely, no matter what state laws say.
The bigger picture goes beyond just one platform. If the CFTC’s broad view of its authority stands, the agency, which has about 700 employees compared to the Securities and Exchange Commission's 5,000, would become the main regulator for a whole new type of financial product aimed at consumers. The result of the Ninth Circuit appeal could decide whether prediction markets remain under federal supervision and available nationwide, or whether states retain the right to treat them as gambling and regulate them as they see fit.
If you have any questions, Lippes Mathias LLP attorney Mina Mirzaie-Frodey may be contacted regarding matters related to this topic and more at mmirzaie@lippes.com
