How Regulators are Dealing With Prediction Markets in May 2026
It’s seconds out for the next round of action between prediction markets and gambling regulators in the United States.
The CFTC (Commodity & Futures Trading Commission) is taking on the states one by one.
Will state regulation win out over the CFTC’s stranglehold in the ultimate knockout blow?
Federal oversight vs. state gaming regulation: key flashpoints
- CFTC has federal regulatory power over prediction markets like Kalshi
- It regards predictions as legitimate financial trading platforms
- Prediction markets are ‘sportsbooks’, states argue
- Volume of legal cases between CFTC and states is rising in the courts
The CFTC is the federal regulator overseeing prediction markets in the U.S. It operates under the Commodity Exchange Act, treating prediction markets like financial institutions.
Though the CFTC was previously against betting on events such as elections and world events, its stance has shifted. Prediction platforms started offering sports events in early 2025 after the CFTC relaxed its position.
Sports event contract shift angers states
The move to offer sports events has angered states with their own regulated sportsbooks. A slew of lawsuits has gone back and forth through the courts as state regulators firm up their positions.
Several states, including Wisconsin, Arizona, and Nevada, have attempted to ban prediction markets in opposition to the CFTC. The CFTC has countersued, arguing that it alone has regulatory control over these markets.
What are prediction markets?
Prediction markets are trading exchanges where you can bet on event contracts covering everything from sports to politics and entertainment.
Contracts are binary and settle on a ‘Yes’ or ‘No’ result. You purchase shares at the set price, and these always settle at $1.
For example, if you buy ‘Donald Trump to leave the White House in 2026’ at 38¢, you would win 62¢ per share if Trump did leave.
Who regulates prediction markets now?
Prediction markets are subject to federal jurisdiction and are regulated by the CFTC as derivatives platforms. However, the rise of consumer-based events, like sports, has pushed states with their own betting regulations to fight back.
Are prediction markets gambling?
Prediction markets and the CFTC argue that events are no different from derivatives markets. State regulators say they are gambling.
In truth, they are somewhere between the two. Participants control the prices, unlike online sportsbooks, which set the odds.
Democrats weigh in on prediction markets debate
The war on prediction markets has a new player: the Democrats. At the end of April, a group of Democratic lawmakers sent a letter to the CFTC, demanding they rein in controversial prediction markets, including:
- Wars
- Election results
- Military action
- Sports events
In a letter shared with CNBC, the letter called on the CFTC to tackle the “erosion of integrity” at platforms, such as Kalshi.
Group leader Jeff Merkley has introduced bills to restrict the use of prediction markets for sports and elections.
That could be easier said than done. According to recent congressional research, nearly 90 percent of trades placed on prediction market giant Kalshi last year were on sports.
Circuit split brings Supreme Court ruling nearer
The U.S. Supreme Court is likely to jump in as the war on prediction markets intensifies. A ruling by the United States for the Third Circuit found that Kalshi’s markets adhered to the Commodity Exchange Act.
However, that position was contradicted by the United States Court of Appeals for the Ninth Circuit last month. Court judges were skeptical that the legal position of predictions was sound.
By next year, we may know whether predictions will be available U.S.-wide or are geofenced by state regulators. Ohio is among the first states to push for state regulation of these popular platforms.
