The split over prediction markets versus sports betting regulation starts with a date: on September 22, 2023, the Commodity Futures Trading Commission disapproved KalshiEX LLC’s Congressional Control Contracts.
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What is on this page
The agency said the contracts involved gaming, involved activity unlawful under state law, and were contrary to the public interest. Kalshi sued in federal court in Washington. That case is now the template for a larger argument: a contract listed on a CFTC-regulated exchange is a financial instrument, not a wager, even when the underlying event looks like something a sportsbook would book.
The distinction is now being tested outside election markets.
What the federal lane allows
Section 5c(c)(5)(C) of the Commodity Exchange Act authorizes the CFTC to prohibit event contracts that are determined to be contrary to the public interest. CFTC Regulation 40.11 lists contracts involving terrorism, assassination, war, gaming, or activity unlawful under state or federal law as prohibited categories.
The CFTC’s 2024 proposal on event contracts drew a direct line between prediction markets and gambling. It said contracts involving political contests are gaming and may not be listed for trading or accepted for clearing if they fall within the enumerated categories. The proposal’s illustrative gaming examples include staking or risking something of value on the outcome of a political contest, an awards contest, or a game in which athletes compete.
That last example matters. It puts sports event contracts in the same regulatory box as political markets, at least in the agency’s own drafting.
The election-contract test case
Kalshi’s Congressional Control Contracts went through the formal review channel. The CFTC initiated review under Regulation 40.11(c) on June 22, 2023, then issued its disapproval order three months later.
Kalshi sued the CFTC in the U.S. District Court for the District of Columbia after the agency blocked the contracts. In 2024, that district court vacated the CFTC’s order and held that the agency exceeded its authority in prohibiting Kalshi’s election contracts. The D.C. Circuit agreed the CFTC had not shown how the agency or the public interest would be harmed, and the administrative stay was dissolved. The appellate ruling is KalshiEX LLC v. CFTC, case number 24-5205. By May 2025, Reuters reported, the CFTC had moved to drop its appeal.
Why states say this is still gambling
The states’ argument is the substance-over-form point: if a customer risks money on an outcome, a state gambling regulator does not care that the ticket was printed by a derivatives exchange rather than a sportsbook. The CFTC has handed states the language. Its 2024 proposal calls political contests gaming and groups them with sports contests in the enumerated prohibited categories.
New York made the overlap concrete. A 2026 CFTC emergency order describes New York’s enforcement action and temporary restraining order motion against Kalshi as involving contracts relating to sports, culture, elections, and other events. The CFTC treated the state action as an emergency because it was a “major market disturbance” affecting market accuracy.
That is a blunt admission: a state gambling case, not a federal market event, became the reason for the CFTC to declare an emergency.
The push into sports and the open questions
The emergency order’s language about sports and culture contracts signals that the fight has moved beyond the 2023 congressional-control contracts. Yet the record is incomplete. The precise state-by-state cease-and-desist letters and injunction fights have not been consolidated into a single public docket. The specific sports event contracts at issue, including exchange names and contract symbols, are not set out in the CFTC’s emergency order. Tribal objections have surfaced only in scattered references, not in a final merits ruling. No formal CFTC no-action letter on prediction markets or sports event contracts has been made public in the materials reviewed.
What remains most open is preemption. No court has issued a universal ruling that a federally listed event contract is immune from state gambling law. The Kalshi decisions were about CFTC authority and the agency’s failure to show harm. They did not decide that every state enforcement action is preempted.
Where the courts have landed so far
The federal record is clear only on the agency side. The district court vacated the CFTC’s prohibition. The D.C. Circuit let Kalshi resume listing. The CFTC then stopped appealing.
What is not decided is whether a state can still call the same contract a wager and go after it under state gaming law. New York has already tried. The collision between federal market regulation and state gambling enforcement is the active front. The Kalshi rulings gave exchanges a federal victory, but they did not close the state-law door.