Momentum is building across US states to regulate or restrict prediction markets, with multiple legal actions targeting platforms such as Kalshi and Polymarket. Nearly a dozen states have taken steps ranging from cease-and-desist letters to criminal charges, and federal action is increasingly likely.
Nevada became the first state to issue a temporary ban. On March 20, Carson City District Court Judge Jason Woodbury granted a motion initiated by the Nevada Gaming Control Board that blocked Kalshi from operating in the state for 14 days. The board’s chair, Mike Dreitzer, said prediction markets “facilitate unlicensed gambling” and are therefore illegal under state law. The order prevents Kalshi from offering “event-based contracts relating to sports, politics and entertainment to people within Nevada without first obtaining all required licenses,” according to sports betting attorney Daniel Wallach.
Arizona has pursued an even tougher route. A few days before the Nevada order, Arizona Attorney General Kris Mayes filed criminal charges against Kalshiex LLC and Kalshi Trading LLC, alleging they ran an illegal gambling operation and accepted bets on Arizona elections, which Arizona law expressly bans. The AG’s complaint said Kalshi accepted wagers from Arizona residents on professional and college sports, proposition bets on individual player performance, and whether the SAVE Act would become law. Sports betting in Arizona requires a gaming license.
Other states are moving by legislation or enforcement. Utah Representative Joseph Elison introduced HB243 to define proposition betting as “a gambling bet on an individual action, statistic, occurrence, or non-occurrence.” In Pennsylvania, Representative Danilo Burgos plans a bill to bring prediction markets under the Pennsylvania Gaming Control Board with measures that would include a 34% state tax and a 2% local share assessment on gross revenue, a ban on underage users, self-exclusion lists, and strict AML and KYC protocols.
Numerous states have issued cease-and-desist orders or sought injunctions. Not all efforts have succeeded: in Tennessee, U.S. District Judge Aleta Trauger blocked a state injunction intended to stop Kalshi’s operations, finding the event contracts were “swaps” under the Commodity Exchange Act (CEA) and thus within the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC).
The diverging state actions have raised the central question of who should regulate prediction markets. Operators and many supporters argue that these platforms are financial exchanges subject to federal oversight under the CEA and therefore fall under CFTC jurisdiction. Kalshi has argued states are attempting to individually regulate a nationwide financial exchange and that federal jurisdiction applies. Proponents say prediction markets differ from sportsbooks and casinos and should not be governed by a patchwork of state gambling laws.
Critics and some lawmakers counter that prediction markets can evade state regulation and taxation, creating “regulatory arbitrage” that leaves constituents vulnerable and deprives states of revenue. The American Gaming Association has noted billions of dollars in potential tax revenue at stake across states with legal online sports betting. Representative Burgos and others have framed state regulation as a way to protect residents and capture tax revenue.
Federal lawmakers are responding. Senator John Curtis (R–Utah) introduced the Prediction Markets Are Gambling Act to amend the CEA to prohibit “event contracts involving sports and casino-style games,” seeking to clarify that states retain authority over sports betting and casino gaming. Curtis has said the bill would restore state power, protect families, and keep speculative financial products out of inappropriate spaces.
The CFTC itself is engaged: it is seeking public input as it considers rulemaking on prediction markets. The agency currently has one sitting commissioner, Chair Michael Selig, who has defended prediction markets and indicated the CFTC will protect their federal oversight. Legal observers note that if the CFTC moves to embrace prediction markets and the preemption issue reaches the Supreme Court, the outcome will hinge on the Court’s interpretation of federal authority under the CEA.
Legal analysts such as Aaron Brogan of Brogan Law argue states will continue pressing enforcement until they succeed or are stopped, and that much of the state action is driven by motives other than the intrinsic merits of prediction markets. The debate touches competing priorities: federal uniformity and market innovation versus state regulatory authority, consumer protection, and tax revenue.
As enforcement and legislative efforts proliferate, the regulatory future for prediction markets remains uncertain. A patchwork of state actions, proposed state laws, federal bills, and possible CFTC rulemaking could converge in courts or Congress to define whether prediction markets operate as federally regulated financial instruments or fall within states’ gambling regimes.
