44 state attorneys general have urged the U.S. Commodity Futures Trading Commission to withdraw and rewrite its proposed prediction market rule, arguing that it exceeds the agency’s authority and intrudes into an area traditionally regulated by states.
Summary
- Attorneys general from 44 states have urged the CFTC to withdraw and rewrite its proposed prediction market rule.
- The coalition argued that regulating sports betting has traditionally been a state responsibility, not a federal one.
- The filing adds pressure as courts continue issuing conflicting rulings on sports prediction markets across the United States.
According to a letter submitted Monday by attorneys general from 44 states, led by Ohio Attorney General Andy Wilson, the CFTC’s proposed framework for sports-related prediction markets extends beyond the authority granted under the Commodity Exchange Act and should be replaced with a new rule consistent with federal law and the U.S. Constitution.
The filing was submitted as the public comment period on the agency’s proposed amendments to Rule 40.11 came to a close, adding another challenge to the CFTC’s effort to establish a federal framework for event contracts tied to gaming and other sensitive activities. The proposal has already attracted comments from sports leagues, exchanges, legal experts and crypto industry participants.
“The CFTC in the Proposed Rule goes well beyond its statutory authority,” the attorneys general wrote, adding that the agency should reconsider the proposal and draft a replacement aligned with the Commodity Exchange Act and constitutional limits.
States say sports betting belongs under state oversight
In their submission, the attorneys general argued that the proposal would substantially expand federal oversight into gambling, a field they said has historically remained under state control.
The letter stated that states have long regulated gambling, including sports betting, while the federal government has not. It also argued that the proposed rule would give the CFTC authority over an area carrying significant economic and political implications without clear authorization from Congress.
The position directly challenges the CFTC’s longstanding interpretation of the Commodity Exchange Act. In multiple court filings involving sports prediction markets, the Commission has argued that federally listed derivatives fall within its exclusive jurisdiction and cannot be regulated under conflicting state gambling laws.
The disagreement has intensified as sports-related event contracts offered by prediction market platforms continue expanding across the United States. Courts in several states are now considering where federal derivatives law ends, and state gambling authority begins.
Court rulings continue pulling the dispute in different directions
Recent litigation has produced conflicting outcomes for prediction market operators.
On Monday, a federal judge temporarily blocked Minnesota from enforcing its newly enacted prediction market ban, allowing Kalshi and Polymarket to continue offering contracts in the state while the lawsuit proceeds.
Hours later, however, another federal judge in New York again declined to stop the state from enforcing its gambling laws against Kalshi, leaving the platform without the preliminary relief it had sought.
Other states have also taken action against sports event contracts. Last month, a Michigan judge granted a temporary restraining order preventing Kalshi from offering sports-related contracts in the state. A Washington court reached a similar conclusion last week, temporarily blocking the platform after finding that its products likely constitute illegal gambling under Washington law.
The legal split follows an earlier setback for Kalshi in New York. Earlier this month, Judge Analisa Torres denied the company’s request for a preliminary injunction, allowing New York’s gambling enforcement to continue while the case moves forward. Sports law attorney Daniel Wallach said at the time that the ruling could complicate Kalshi’s challenges in other states because the court concluded that the CFTC’s exclusive jurisdiction under the Commodity Exchange Act is not unlimited and recognized gambling regulation as a traditional state responsibility.
At the same time, North Carolina has taken the opposite approach. Senate Bill 257, signed into law on July 7, explicitly recognizes the CFTC’s exclusive federal authority over prediction markets while permitting federally registered platforms to operate in the state beginning Jan. 1, 2027. The legislation also imposes a 6% tax on trading fee revenue generated from North Carolina residents, while separately increasing taxes on licensed sports betting operators.
CFTC proposal has drawn criticism beyond state regulators
The attorneys general’s comments arrive only days after the National Football League asked the CFTC to strengthen, rather than relax, oversight of sports prediction markets.
According to a July 27 letter obtained by The Closing Line, the NFL told CFTC Chair Michael Selig that the agency’s proposed event contract framework contains useful safeguards but does not provide enough protection for game integrity or consumers.
Among its recommendations, the league called for tighter limits on contracts that could be influenced by individual participants or officiating decisions, longer regulatory review periods before new contracts become effective, explicit restrictions on the use of material non-public information and mandatory league-specific prohibited bettor lists. The NFL also repeated earlier recommendations supporting a ban on margin trading for sports contracts, advertising restrictions and a minimum participation age of 21.
Unlike the NFL, the National Hockey League and Major League Baseball have entered partnerships with prediction market platforms, illustrating the different positions taken by major U.S. sports organizations as the market expands.
Rule 40.11 proposal remains under review
The attorneys general’s filing closes another chapter in the CFTC’s public consultation on amendments to Rule 40.11, which would establish a formal review process for event contracts linked to gaming, war, terrorism, assassination and unlawful activity.
Under the proposal, the Commission would first determine whether a product qualifies as an event contract before deciding whether its settlement depends on one of the activities identified in the Commodity Exchange Act. Contracts meeting both conditions would then undergo a public-interest review before regulators decide whether they should be permitted.
Days before the comment deadline, the CFTC’s Division of Market Oversight separately reminded exchanges not to submit broad, template-style self-certifications covering large groups of event contracts. Instead, designated contract markets must provide contract-specific settlement methods, legal analysis, data sources, and product terms so regulators can evaluate each filing individually.
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