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The federal government has escalated its battle for control over the booming prediction market industry, filing lawsuits against several states to block them from regulating event-based trading platforms as “illegal gambling.”
This shift moves the conflict beyond isolated regulatory disagreements and into a high-stakes constitutional fight over who has the final say in the trillion-dollar derivatives market.
The federal escalation: CFTC sues three more states
On April 2, 2026, the Commodity Futures Trading Commission (CFTC), under Chairman Mike Selig, filed federal lawsuits against Illinois, Arizona, and Connecticut.
The suits aim to invalidate cease-and-desist orders issued by state gaming boards against platforms like Kalshi, Polymarket, and Robinhood. The federal government argues that these platforms offer “event contracts”—financial instruments that fall under exclusive federal jurisdiction—rather than the “unlicensed gambling” that states claim they are.
Why the 3rd Circuit ruling in NJ changed everything
The federal argument gained massive momentum on April 6, 2026, when the US Court of Appeals for the 3rd Circuit issued a 2-1 decision in Kalshi v. Flaherty.
The court ruled that sports-related event contracts are “swaps” under the Commodity Exchange Act (CEA). Crucially, the court held that federal law preempts state gambling regulations in this area, effectively barring New Jersey from enforcing its gaming laws against federally registered platforms. This marks the first time a federal appeals court has officially shielded prediction markets from state-level prosecution.
Defining “swaps”: The federal vs. state jurisdiction battle
Despite the New Jersey ruling, the battle remains fragmented:
- Nevada: On April 10, 2026, a Nevada judge extended a ban on Kalshi, ruling that its contracts are “indistinguishable” from sports betting.
- Illinois: Governor J.B. Pritzker’s administration has vowed to fight the federal suit, accusing the Trump administration of “putting profits over people” by bypassing state consumer protections and tax requirements.
For these states, the issue is both legal and economic. States argue they are losing hundreds of millions in tax revenue as users migrate from regulated sportsbooks to prediction markets that do not pay state gaming taxes or follow local age-verification mandates.
What’s at stake: The April 16 Nevada hearing
The industry’s future now rests on the 9th Circuit Court of Appeals, which is scheduled to hear consolidated arguments on April 16, 2026, regarding Nevada’s restrictions.
- If the 9th Circuit agrees with the 3rd Circuit: Federal authority will be nearly absolute, likely leading to a rapid expansion of prediction markets nationwide.
- If the 9th Circuit rules for Nevada: It will create a “circuit split”—a direct conflict between two federal appeals courts.
A circuit split would almost certainly send this issue to the US Supreme Court by the end of 2026.
Will SCOTUS have the last word?
The federal government’s direct intervention marks the end of the “patchwork era” for prediction markets. Whether these platforms are categorized as financial tools for hedging risk or just another way to bet on the Super Bowl is no longer a matter of opinion—it is a matter of federal law that will redefine the intersection of finance and gaming in America.
