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The Commodity Futures Trading Commission is escalating its defense of prediction markets. On Feb. 17, the agency filed a brief in federal court arguing that states cannot block federally regulated “event contracts” because they tie payouts to real-world outcomes.
CFTC Chairman Michael S. Selig said the agency submitted an amicus brief, or “friend of the court” filing, to support a 9th US Circuit Court of Appeals case involving Nevada regulators. The CFTC’s position is clear: Federal law, not state gambling law, should govern these contracts.
What began as a state-level dispute has spread beyond a single jurisdiction, with several states pushing back against sports event contracts. Regulators continue to pursue legal action even though these contracts are listed on exchanges overseen by the CFTC.
At the heart of the matter is a clash between two regulatory frameworks: federal oversight of derivatives markets versus state authority over gambling. The outcome could define where one system ends and the other begins.
9th Circuit battle: Federal preemption vs. state law
In its Feb. 17 filing, the CFTC asserted exclusive jurisdiction over US commodity derivatives markets, including the event contracts often called prediction markets. The case, North American Derivatives Exchange Inc. et al. v. The State of Nevada, was filed against officials connected to the Nevada Gaming Control Board, according to a Wall Street Journal op-ed.
Selig framed the state’s actions as an attempt to redraw a boundary he says Congress has already established. In a statement accompanying the brief, he said CFTC-registered exchanges have faced an “onslaught of lawsuits” aimed at limiting access to event contracts, calling the state-level push a “power grab” that ignores decades of precedent.
The CFTC also argued that courts and Congress have long treated these markets as federal territory, pointing to the agency’s 1992 recognition of event contracts and subsequent updates to federal law following the 2008 financial crisis.
Nevada’s regulatory push against Kalshi
Despite the CFTC’s intervention, Nevada has taken direct steps to halt Kalshi’s operations. On Feb. 17, state gambling regulators sued the company to stop the platform from offering sports outcome contracts to Nevada residents.
Nevada argues these contracts constitute wagering under state law and require a local license. The complaint also emphasized consumer protections applied to sportsbooks, including strict age limits and integrity controls intended to reduce fraud.
State officials are framing the case as a matter of public protection, arguing they should not lose authority simply because a product is offered through a federally regulated platform.
Kalshi disputes that framing, arguing its contracts are “swaps”—a type of regulated financial contract overseen by the CFTC. Kalshi has moved to shift Nevada’s case to federal court, citing the CFTC’s claim to exclusive jurisdiction.
Why the CFTC rejects the ‘sports betting’ label
The CFTC maintains that event contracts are more than just entertainment wagers. Selig said they provide practical value by helping businesses and investors manage risk and hedge event-driven exposure. He described them as tools for price discovery that reflect market expectations.
State regulators see the products differently, with many labeling them unlicensed sports betting. This distinction carries heavy consequences; state sportsbooks must operate under local licensing, follow state tax structures, and comply with specific consumer safeguards.
Under a federal regulation model, event contracts can be offered nationwide, reducing state control and enforcement options. This is the core of the dispute: States want to apply their own guardrails, while the CFTC maintains that Congress placed these contracts under federal oversight.
Defining the future of US prediction markets
The legal fight coincides with a policy push at the CFTC. Selig said the agency plans to draft clearer rules for event contracts to define what is allowed and set firm limits. However, the agency is not waiting for the formal rulemaking process to finish; the Feb. 17 filing signals the CFTC’s immediate intent to defend its role.
The 9th Circuit appeal could set a major precedent for whether states can restrict contracts offered through CFTC-regulated channels. Nevada’s separate lawsuit against Kalshi may move faster, as the state has requested emergency relief that could produce a near-term ruling.
The stakes are high. States say they are protecting residents from unlicensed wagering and safeguarding the integrity of sports, while the CFTC warns that state interference creates a fragmented national market. The coming decisions will determine if prediction markets operate under a unified federal system or a patchwork of state-level limits.
