The Legal Landscape — Why Prediction Markets Are Being Tested in Court

Prediction Markets 101, Part 7

Prediction Market Legal Battle / Predictions OnSI

One of the most important realities about prediction markets in 2026 is that their legal framework continues to evolve.

Platforms such as Kalshi operate with approval from the Commodity Futures Trading Commission (CFTC), which regulates derivatives markets at the federal level. Other platforms are pursuing similar regulatory pathways. At the same time, several state regulators argue that certain event contracts — particularly those tied to sports outcomes — fall within existing state gaming statutes.

As a result, the legal status of sports-related event contracts is being examined in multiple courts.

Here’s how the conflict is unfolding.

Federal vs. State: The Core Conflict

Following the U.S. Supreme Court’s 2018 decision overturning the Professional and Amateur Sports Protection Act (PASPA), sports wagering regulation became primarily a state-level matter. Each state that permits sports wagering establishes its own regulatory structure and licensing framework.

Event contract exchanges operate under a different model. Federally regulated exchanges argue that their contracts fall under derivatives law overseen by the CFTC. Under this interpretation, federal regulation governs the listing and trading of these contracts.

Several state regulators have challenged that interpretation. Their position is that contracts tied to specific sports outcomes should be subject to state gaming oversight regardless of federal derivatives classification.

The disagreement centers on whether federal commodities regulation preempts state gaming law.

Early Court Decisions

In early 2026, a Massachusetts court issued a preliminary injunction preventing Kalshi from offering certain sports-related event contracts within the state. The court determined that the contracts could fall within the state’s existing gaming framework.

The case is part of a broader legal process that may ultimately involve federal appellate review. Courts will likely evaluate the relationship between federal derivatives law and state gaming authority when determining jurisdiction.

At the same time, regulatory agencies continue to review how event contracts should be classified and supervised.

Stakeholders on Both Sides

A wide range of stakeholders are engaged in the debate surrounding prediction markets.

Some state gaming regulators and tribal gaming operators have expressed concerns about the expansion of sports-related event contracts without state licensing structures. Public policy groups have also raised questions about consumer protections and responsible participation.

Supporters of prediction markets include technology companies, financial market participants, and organizations that view event contracts as part of broader financial market innovation. Several financial platforms have shown interest in integrating event contracts into trading infrastructure.

Because multiple industries are involved, the policy discussion extends beyond sports markets alone.

Why the Outcome Matters

The outcome of these legal disputes will influence how prediction markets operate in the United States.

If courts determine that certain contracts fall under state gaming regulation, access could vary by jurisdiction in a manner similar to sports wagering markets. If federal derivatives authority is upheld more broadly, event contract exchanges could potentially operate across multiple states under a single regulatory framework.

Either outcome would shape how platforms structure markets and how participants access them.

In addition, the CFTC’s rulemaking process related to event contracts — including public comment periods and potential regulatory guidance — will play a role in defining the long-term boundaries of the industry.

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