State lawmakers and gaming regulators across the United States are intensifying their legal battle against prediction-market platforms such as Kalshi and Polymarket, arguing that they are effectively gambling operations disguised as financial trading. At least 20 federal lawsuits have been filed nationwide, challenging the companies' classification as federally regulated financial exchanges.
The platforms allow users to trade on outcomes ranging from sports events to elections, with more than $1bn traded on Kalshi alone during Super Bowl Sunday. Unlike licensed sportsbooks, which operate under state regulations and are taxed, prediction markets classify their products as 'event derivatives' under federal commodities law, overseen by the Commodity Futures Trading Commission (CFTC). This enables them to operate in all 50 states with users aged 18 and older.
The row escalated this week when the CFTC chair announced a friend-of-the-court brief defending the agency's jurisdiction. Legal experts warn that the blurring of lines between gambling and investing is likely to culminate in a Supreme Court showdown. 'What’s happened is the lines between gambling and investing have been blurred,' said John Holden, a business law professor at Indiana University.
State authorities have issued cease-and-desist letters and filed lawsuits, asserting that the platforms constitute unlicensed sports wagering. In October, New York’s gaming commission ordered Kalshi to cease offering sports-related contracts, and New York Attorney General Letitia James issued a consumer alert warning of risks. Kalshi has since sued, arguing that CFTC oversight pre-empts state authority.
The companies have responded with aggressive promotions, including offering $50 grocery vouchers in New York. Polymarket recently announced a five-day 'free grocery store', widely seen as a nod to local political proposals. A Kalshi spokesperson stated that 'consistent, national oversight is better for consumers than a patchwork of inconsistent state laws.'
