By: Matthew Rowe
Prediction markets like Kalshi and Polymarket have spent the past year at the center of one of the more unusual regulatory fights in recent memory, not because every state is trying to shut them down, but because most states aren’t trying to do anything at all.
Roughly a dozen and a half states have sent cease-and-desist letters, filed lawsuits, or attempted outright bans since early 2025. The other two-thirds of the country has simply let the platforms operate, deferring implicitly to a federal regulator that insists it already has exclusive jurisdiction. That split isn’t random and understanding why so many states are staying on the sidelines says as much about the underlying legal theory as the states that have picked a fight.
How we got here
Kalshi and Polymarket sell “event contracts”: tradable instruments that pay out based on the outcome of a future event, from Federal Reserve decisions to elections to, increasingly, sports. Because the Commodity Futures Trading Commission treats these contracts as regulated swaps under the Commodity Exchange Act, the companies argue federal law preempts state gambling law entirely — meaning no state licensing, no state taxation, and no state authority to shut them down.
State gaming regulators, and the legacy sportsbook industry that competes with them, see something else: unlicensed sports betting wearing a financial-markets costume, and a serious threat to the licensing fees and tax revenue built up over a decade of legal, state-regulated sports gambling.
That tension produced a wave of state action in 2025 and 2026 and, more recently, a wave of states declining to join it.
The states that picked the fight
Nevada moved first, winning a temporary restraining order against Kalshi in early 2026 after its Gaming Control Board concluded the platform was “indistinguishable” from state-regulated sports gambling. Arizona followed with the first criminal charges filed against the company. Since then, at least a dozen more states have joined in some form: Massachusetts won a preliminary injunction in state court; Ohio, Illinois, Maryland, and Montana sent cease-and-desist letters; Rhode Island and Kalshi sued each other simultaneously; Washington’s attorney general won a preliminary injunction in King County Superior Court; Michigan won a similar order; and New York’s gaming commission ordered Kalshi to shut down, a position a federal judge later upheld when she denied Kalshi’s request for a preliminary injunction against the state.
Minnesota went further than anyone: in May 2026 it became the first state to pass an outright criminal ban on hosting or advertising prediction markets, punishable as a felony. A federal judge blocked that law just days before it was set to take effect, siding with a joint challenge from the CFTC, Kalshi, and Polymarket.
Why most of the map hasn’t moved
That leaves roughly 35 states and the District of Columbia that have taken no formal action against prediction markets at all — and a few forces explain why.
The federal government is actively fighting the states’ battles for them, in reverse. Rather than wait to be sued, the CFTC has gone on offense, filing suits against Arizona, Connecticut, and Illinois in April 2026 and reportedly against Wisconsin and New York as well, seeking injunctions that would bar those states from enforcing their own gambling law against a CFTC-licensed exchange. For a state legislature or attorney general watching the agency’s own regulator sue fellow states into submission, picking a fight looks like a costly, possibly futile use of resources.
The first federal appellate ruling went against the states. In April 2026, the Third Circuit ruled 2-1 in Kalshi’s favor against New Jersey, holding that only the CFTC — not individual states — can regulate sporting event contracts. That’s binding precedent across Delaware, New Jersey, Pennsylvania, and the Virgin Islands, and persuasive authority everywhere else, at least until another circuit disagrees or the Supreme Court steps in.
Some states are choosing revenue over prohibition. North Carolina is moving to tax prediction market activity rather than ban it, joining a small but growing group of states treating the industry as a new tax base instead of an existential threat to existing sportsbooks.
And in at least one case, the fight against Kalshi wasn’t entirely the state’s own. Records obtained by Baltimore’s Fox45 showed that Maryland’s gaming regulator sent the CFTC a letter opposing prediction markets that was nearly word-for-word identical to a draft supplied eight days earlier by the American Gaming Association — the trade group representing the commercial casino industry Kalshi competes with. A Maryland spokesperson insisted the agency had reached its position “independently.”
“It’s hard to be independent because in this case, they’ve clearly failed to be,” said Sean Patrick Maloney, president of the industry-funded Coalition for Prediction Markets, of Maryland’s regulators.
Whether that episode is representative of the regulators or not, asks the question is the pushback is simply consumer protection at work and it may partly explain why some states have preferred to stay out of a fight that, on closer inspection, isn’t entirely theirs.
At a glance — a divided map
| States That Have Acted | States That Haven’t | |
| Approximate count | ~16 states | ~35 states + D.C. |
| Typical action | Cease-and-desist letters, lawsuits, injunctions; one outright ban (Minnesota, currently blocked) | No formal enforcement action to date |
| Underlying posture | Sports gambling law applies; CFTC preemption rejected or untested | Deferring to CFTC’s asserted federal jurisdiction, or awaiting appellate clarity |
| Examples | Nevada, Massachusetts, Washington, New York, Minnesota, Arizona | Most of the remaining states, by default |
The legal question underneath the map
At bottom, this is a federal preemption fight, not an antitrust one — but it shares a structural question regarding antitrust disputes: who gets to set the rules, and whose interests are really being protected when they do?
Preemption and the Commodity Exchange Act. Kalshi’s central argument is that event contracts are “swaps” under the CEA, an area Congress gave the CFTC exclusive authority to regulate — meaning state gambling law simply doesn’t reach them, the same way state insurance law can’t reach a federally regulated securities exchange. States counter that a contract paying out on the outcome of a football game is a wager by any ordinary definition, dressed in financial-instrument language to dodge licensing and tax obligations that every other sportsbook in the state has to meet.
A circuit split is forming. The Third Circuit’s ruling for Kalshi is now in tension with a Southern District of New York decision holding that New York’s gambling laws are not preempted, and with signs from the Ninth Circuit hearing Nevada’s appeal — that a panel there may side with the state. A split among federal appellate courts on the same legal question is exactly the scenario the Supreme Court exists to resolve, and prediction-market traders have themselves priced meaningful odds that a cert grant arrives before the end of 2026.
Selective enforcement, again. The prediction-market fight raises its own selective-enforcement question — except here it runs between jurisdictions rather than within one league. A trader in Nevada or Washington faces a blocked platform; a trader in a neighboring state with no enforcement action faces none of the same restrictions, for a product that is, functionally, identical. That geographic arbitrariness is itself a symptom of the underlying preemption question being unresolved — once a single federal answer arrives, the patchwork disappears in one direction or the other.
None of this means the states that have acted are wrong on the merits — CEA preemption is a real and unsettled legal question, not a settled one Kalshi is simply right about. But the growing gap between roughly a third of the country actively fighting prediction markets and the remaining two-thirds doing nothing at all is less a sign of consensus than of everyone waiting for the same court to finally decide who’s actually in charge.
Note: This is a fast-moving area of litigation. Several of the cases referenced above — including Nevada’s Ninth Circuit appeal and New York’s ongoing suit — remain unresolved as of this writing, and their outcomes could materially change the state-by-state picture described here.
