Regulatory pressure is mounting across the U.S. as nearly a dozen states move to restrict or shut down prediction markets, and federal involvement appears increasingly likely. State actions range from cease-and-desist letters and proposed legislation to criminal charges and temporary bans aimed at platforms such as Kalshi and Polymarket.
Nevada led the enforcement drive when a Carson City judge granted a 14-day order at the request of the Nevada Gaming Control Board, temporarily blocking Kalshi from operating in the state. The board argues prediction markets amount to unlicensed gambling and must comply with state licensing rules for event-based contracts tied to sports, politics, or entertainment.
Arizona has pursued a tougher path. Attorney General Kris Mayes filed criminal charges against Kalshi entities, alleging they ran an illegal gambling operation and accepted wagers on Arizona elections and other events—activities Arizona law prohibits without a gaming license. The complaint also cites bets on professional and college sports, player-specific propositions, and whether the SAVE Act would pass.
Other states are addressing prediction markets through bills or regulatory proposals. Utah Representative Joseph Elison introduced HB243 to define proposition betting as a bet on an individual action, statistic, occurrence, or non-occurrence. In Pennsylvania, Representative Danilo Burgos has signaled a bill to place prediction markets under the Pennsylvania Gaming Control Board, proposing a 34% state tax, a 2% local share assessment on gross revenue, a ban on underage users, self-exclusion lists, and robust AML/KYC requirements.
Many states have issued cease-and-desist orders or sought injunctions; some efforts, however, have met federal preemption arguments. In Tennessee, a federal judge blocked a state injunction aimed at stopping Kalshi, finding those event contracts were ‘swaps’ under the Commodity Exchange Act (CEA) and therefore within the Commodity Futures Trading Commission’s (CFTC) exclusive jurisdiction.
That split highlights the central regulatory dispute: should prediction markets be treated as gambling governed by state law, or as financial exchanges subject to federal oversight under the CEA? Operators and supporters argue these platforms are financial markets that should fall under CFTC authority, avoiding a patchwork of state rules. Critics counter that prediction markets can evade state regulation and taxation, creating regulatory arbitrage and depriving states of revenue; industry groups point to billions in potential tax receipts tied to online sports betting.
Federal lawmakers and regulators are responding. Senator John Curtis introduced the Prediction Markets Are Gambling Act to amend the CEA and bar event contracts involving sports and casino-style games, restoring state control over those areas. The CFTC is also soliciting public input on possible rulemaking; Chair Michael Selig has defended federal oversight of prediction markets. Legal observers note that if the CFTC embraces these markets, the preemption dispute could end up before the Supreme Court, where interpretation of CEA authority will be decisive.
Legal analysts predict continued state enforcement until courts or Congress resolve the issue. The debate balances federal uniformity and market innovation against state regulatory authority, consumer protection, and tax considerations. For now, the regulatory future of prediction markets remains unsettled, with competing state actions, federal proposals, and potential litigation poised to determine whether these platforms are treated as federally regulated financial instruments or as state-governed gambling activities.