Prediction markets in the US: legal status and the three fights

Summary

– Event contracts are federally regulated derivatives traded on exchanges licensed by the Commodity Futures Trading Commission, which asserts exclusive jurisdiction over them. – Exchanges list new contracts by self-certification instead of approval, subject to a review provision letting the CFTC prohibit contracts involving enumerated activities including gaming and conduct unlawful under state law. – Three separate legal challenges run in parallel: state gaming regulators contesting sports contracts, California tribes suing under federal Indian gaming law, and a circuit court weighing whether these contracts are swaps. – A bipartisan bill would ban sports event contracts on CFTC-regulated exchanges outright, which would remove the category generating most retail volume. – The CFTC proposed amendments in June 2026 to define the terms its review provision has always left undefined, while operating with a single confirmed commissioner.

Almost every question about prediction markets in the United States reduces to one dispute: whether a contract on a football game listed by a federally licensed derivatives exchange is a financial instrument or a bet. Federal law treats it as the first. A dozen or more state gaming regulators treat it as the second. California tribes argue it is a third thing, unlicensed gaming conducted on their lands. And Congress is weighing a bill that would settle the question for sports by prohibiting those contracts entirely. Meanwhile the market grew: combined volumes across the major venues exceeded $44 billion in 2025, one exchange cleared over $31 billion in a single month, and a retail brokerage reported $156 million of event contract revenue in a quarter, exceeding what it earned from crypto. This page covers what is legal today, who regulates it, the three challenges running simultaneously, and what would change each answer.

What is legal, and under whose authority

Start with the settled part, because it is genuinely settled at the federal level.

Event contracts are derivatives under the Commodity Exchange Act. They trade on designated contract markets, exchanges licensed by the CFTC and subject to twenty-three statutory core principles covering manipulation prevention, surveillance, financial integrity, and self-regulation. Contracts clear through registered clearing organizations. Our guide to that licence explains the structure, and our CFTC page covers the agency.

Several venues hold that status. Kalshi obtained designation in 2021 as the first purpose-built prediction market and registered an affiliated clearinghouse in 2024. Polymarket operates domestically through an exchange it acquired. Crypto.com’s derivatives arm, Interactive Brokers’ ForecastEx, an entity affiliated with Gemini, and Rothera, the exchange affiliated with Robinhood and Susquehanna, all operate on the same footing.

For a participant, federal licensing means real protections: segregated customer funds, clearinghouse guarantees, exchange surveillance obligations, and a regulator with examination authority. It does not settle whether a given contract may be offered in a given state, which is the subject of the rest of this page.

How contracts reach the market

The listing mechanism explains why the legal disputes take the shape they do, and it surprises most readers.

Exchanges do not seek approval for new contracts. Under CFTC Rule 40.2 they self-certify, filing a submission stating the product complies with the law and beginning to trade. No prior approval, no waiting period of consequence. That is why markets on a court ruling, a data release, or a tournament appear within days, and our guide to how event contracts get listed covers the process in full.

Paired with that speed is a trapdoor. A provision added by the Dodd-Frank Act lets the Commission prohibit an event contract that involves one of five enumerated activities, unlawful activity, terrorism, assassination, war, or gaming, where it determines the contract is contrary to the public interest. Rule 40.11 implements it as a ninety-day review during which the Commission may request that trading be suspended.

The statute never defined “involve,” “gaming,” or “public interest.” That vacuum produced fifteen years of case-by-case outcomes resolved through certification withdrawals and litigation, and in June 2026 the Commission proposed amendments to fix it: a settlement-based test for when a contract involves an enumerated activity, a definition of gaming, structured public-interest factors, and formal procedures with a day-ninety default favouring the exchange. That rulemaking is the most consequential open proceeding in the category.

Fight one: the states

More than a dozen state gaming regulators contend that sports event contracts are wagers requiring state licensing regardless of federal registration, and the conflict has escalated on both sides.

The state actions include cease-and-desist orders, litigation, criminal charges in at least one state, and at least one enacted ban with an effective date. Courts have split. Some have declined to block exchanges, accepting federal preemption arguments; others have gone the other way, including a July 2026 ruling denying one exchange’s preemption bid.

The federal response has been unusually aggressive. The CFTC has filed legal actions against multiple states asserting exclusive jurisdiction, with nine states named across those proceedings, and its chairman has argued publicly that states lack authority to police prediction markets at all. The agency’s chairman has also described the conflict as likely to reach the Supreme Court.

For a participant, the practical effect is that availability varies by state and changes month to month. Verify current status in your own jurisdiction at the point of trading, from the venue’s own disclosures, and treat any published state list as potentially out of date.

Fight two: the tribes

The least-covered challenge is the one with the most distinctive legal theory, and it is pending at the appellate level.

Three California tribes sued Kalshi arguing that its sports event contracts constitute unlicensed Class III gaming conducted on tribal lands under the Indian Gaming Regulatory Act. A federal district judge denied their preliminary injunction in November 2025, finding secretarial procedures functionally equivalent to compacts but concluding the relevant provisions did not prohibit the exchange’s conduct, and holding that federal internet gambling law excludes transactions on entities registered under the Commodity Exchange Act.

The Ninth Circuit heard argument in July 2026 and questioned the exchange closely, with one judge stating the contracts sound like a bet subject to Native American gambling laws. More than sixty federally recognised tribes have filed amicus briefs across the related proceedings.

This is analytically distinct from the state fight, and our dedicated feature covers why. The state cases ask whether federal registration preempts state police powers. The tribal cases ask whether a 2010 amendment to a commodities statute silently displaced a 1988 Indian gaming statute and the compacts negotiated under it, without mentioning tribes anywhere in its text. That is federal against federal, with a third sovereign whose rights courts have historically read protectively.

Fight three: Congress

The third challenge would settle the largest commercial question by statute, not litigation.

A bipartisan bill would prohibit CFTC-regulated exchanges from listing sports event contracts. Separate proposals target contracts where a participant can influence or foreknow the outcome. Congressional attention has also produced an oversight examination of insider trading risks in these markets, with document requests to at least one exchange covering identity verification and detection capability.

The commercial stakes are direct. Sports generates the majority of retail volume, with one court finding nearly seventy percent of a major exchange’s volume tied to sports, and the NFL season represents the category’s largest annual demand event. A statutory ban would not merely add compliance burden; it would remove the product line most responsible for the sector’s growth.

The regulator’s capacity problem

Every timeline on this page carries the same qualification.

The CFTC is designed to seat five commissioners. It seats one. Four positions are vacant, including both reserved for the minority party, and the agency has operated as a one-person commission across two leadership periods. Its staffing sits far below the SEC’s, and its enforcement division has contracted.

That matters here specifically because the agency is simultaneously running the Rule 40.11 rulemaking, litigating against multiple states, considering a request from one venue to permit US access to an offshore exchange, and supervising a category growing faster than any other product it regulates. Any forecast of how quickly the CFTC resolves these questions should be discounted accordingly.

The scale that makes this urgent

Legal disputes over small markets resolve slowly. The reason these are moving is that the category stopped being small.

Combined volumes across the major venues exceeded $44 billion in 2025. One exchange cleared more than $31 billion in a single month during 2026. A second venue’s offshore book set a record above $10 billion in June, against more than $3.5 billion on its domestic exchange in the same period. Monthly combined volumes passed $20 billion by early 2026.

The retail distribution numbers are the more consequential half. A major brokerage reported $156 million in event contract revenue in a single quarter, exceeding what the same company earned from cryptocurrency trading, and processed more than thirteen billion contracts. That company also acquired its own CFTC-licensed exchange, launched in June 2026, and began routing core markets to it, a development our analysis of that shift examines.

Institutional capital followed. The operator of the New York Stock Exchange completed a strategic investment in one venue that can total up to $2 billion, with distribution rights to its event data, and reporting has described talks at a materially higher valuation since.

Put together, that is a category with tens of billions in volume, mainstream retail distribution through a brokerage with a hundred million accounts, and an exchange operator’s balance sheet behind it. The legal questions on this page were academic when the venues were small. They are now questions about a business that several large public companies have material exposure to, which is why the litigation is well funded on both sides and why the agency’s answers are being sought urgently.

What a ruling would actually change

Because three separate proceedings could land in any order, it is worth separating what each would do, since they are not interchangeable.

A state preemption ruling determines whether a federally licensed exchange may serve residents of a state whose gaming regulator objects. An adverse ruling produces a patchwork in which the same contract is available in some states and not others, which the venues can implement, because they already geofence by state. It does not remove the product.

A tribal ruling is different in kind. Reservations are not states, tribal lands are distributed across many states, and compliance would mean geographic carve-outs within states instead of between them. That is considerably harder to implement and would be the first time these products faced sub-state geographic restrictions.

A statutory sports ban removes the product category entirely from regulated venues, nationwide, regardless of how either court rules. It is the only outcome that eliminates instead of restricting, and it is the one the industry’s political spending is most directly aimed at preventing.

And the swaps question, pending in a separate circuit, sits upstream of all three. If these contracts are swaps under the Commodity Exchange Act, several provisions apply differently and the analysis in the other cases shifts.

The practical implication for anyone tracking this: a headline announcing that an exchange won or lost a case tells you very little without knowing which of the four questions was answered.

What participants should check

Five things, in the order they prevent problems.

Venue licensing. Confirm the exchange holds CFTC designation and clears through a registered clearing organization. That is what separates a regulated venue from an offshore book, and it determines what protections apply.

State availability. Product availability differs by state for legal reasons, and using a workaround forfeits protections and may create exposure.

Contract-specific status. Sports contracts carry regulatory-ending risk that other categories do not, given the pending bill and the state and tribal litigation. Categories remote from gaming are considerably more stable.

Resolution criteria. Contracts pay according to a named source and pre-written criteria, not according to what an ordinary observer concludes happened. Our guide to what happens when a market is delisted covers the outcomes when that process fails.

The venue’s own rules on voiding and suspension. Every scenario in the paragraph above is defined in documents the exchanges publish, and almost nobody reads them before trading.

The surveillance the sector built

One development sits underneath every legal question on this page and receives almost no attention: the venues have constructed exchange-grade surveillance in roughly eighteen months.

The major domestic exchange runs a proprietary detection engine performing continuous pattern recognition on anomalous timing, win-rate irregularities, and coordinated activity, supported by an AI trade-surveillance platform originally built for crypto venues, a sports-integrity firm supplying an encrypted prohibited-persons list, a partnership with a professional sports league to screen personnel, and a forensic academic lab contributing statistical detection methods. Its competitor pairs multi-layered monitoring across its platforms with a data-analytics partnership for sports integrity.

Screening moved from post-trade investigation to preemptive blocking in March 2026. Athletes, officials, and league employees are now blocked from trading associated markets before an order reaches the book, and political screening extends to candidates trading their own races. Identity verification, whistleblower tools on market pages, and employment disclosure for high-risk markets complete the apparatus, and our feature on that build covers the vendors and the pressure that produced it.

This matters for the legal questions in two ways that pull against each other. It strengthens the industry’s argument that these are supervised financial markets, not gambling venues, because the surveillance resembles what a securities exchange runs and nothing a sportsbook does. And it undercuts the accessibility argument the sector was built on, because every identity check and prohibited-persons list removes participants, including some of the best-informed ones, which is both correct as policy and a genuine subtraction from the information these markets aggregate.

Regulators and courts will weigh the first. Traders experience the second.

The offshore alternative, and why it matters here

Any status page on this category has to address what sits outside the regulated perimeter, because a substantial share of global volume trades there and American participants can see it.

Blockchain-based prediction venues settle in stablecoins on public networks, determine outcomes through decentralised oracle processes rather than exchange rulebooks, list contract categories no designated contract market may offer, and require no identity verification. They are geoblocked from US addresses, in one case following a 2022 CFTC settlement carrying a civil penalty. Our guide to the two-venue structure explains how a single brand operates on both sides of that line.

Three consequences follow for anyone reading this page.

The volume comparison is misleading without the caveat. The deepest liquidity in this category sits on venues Americans cannot legally reach, which means domestic market data understates the category and domestic prices are struck in thinner books.

Circumvention forfeits everything. Using a virtual private network to reach a geoblocked venue violates its terms, risks account closure, and removes every protection described on this page. It has also produced at least one prosecution involving trading on non-public information from a restricted venue.

And the perimeter may move. One operator has asked the Commission to permit US users to trade on its offshore exchange directly, which would bring on-chain settlement and stablecoin collateral inside federal supervision for the first time. That request has been pending since April 2026 before a commission with one member.

The honest framing is that the regulated and unregulated halves of this category are converging from both directions: the offshore venues are seeking licences, and the licensed venues are seeking the products and liquidity the offshore ones have. Where they meet is what the next two years decide.

What to watch

The Rule 40.11 final rule. The proposed amendments would define terms undefined since 2010 and set the framework for every future contested contract. The comment docket is where exchanges, state regulators, and tribal interests are making competing cases.

The Ninth Circuit opinion. A reversal in the tribal case would raise the prospect of geographic carve-outs in a product built for nationwide uniformity. An affirmance largely closes that theory and strengthens preemption generally.

The sports bill’s progress. Whether the bipartisan prohibition advances determines the commercial shape of the entire category, and the fall session is when it would move if it moves.

Commissioner confirmations. Every proceeding above is decided by an agency with one confirmed member. Nominations and Senate action on them are prediction-market policy by other means.

The offshore access request. One venue has asked the Commission to permit US users to trade on its main offshore exchange, which settles on a public blockchain in stablecoins. Approval would extend the federal perimeter substantially, and our feature on that filing covers what it would change.

How the category got its licence

A short history explains why the legal position looks the way it does, because none of this was designed.

Event contracts existed for decades as an academic curiosity and a regulatory afterthought. A university-affiliated market operated for years under a no-action letter, a bespoke arrangement, not a framework. In 2012 an exchange self-certified political contracts, the Commission opened a review, and the exchange withdrew the certification before any order issued, which meant the underlying questions were never answered. That pattern of avoidance repeated.

The 2010 Dodd-Frank amendment that created the review provision was drafted with a different problem in mind. Congress had watched proposals for markets on terrorist attacks and assassinations, and the enumerated activities list reads as a response to those specific concerns. Sports and elections were caught by “gaming” and “activity unlawful under state law” as general categories, not as the drafting target.

The category became commercially serious when one exchange obtained designation in 2021, litigated its way to offering election contracts, and won. That outcome changed the balance of power between exchanges and the Commission, and it demonstrated that self-certification plus litigation was a viable route to market for a well-capitalised firm. Volume followed, then retail distribution, then institutional capital.

So the current situation is a product designed around a fifteen-year-old procedural provision, offered at a scale nobody contemplated, under statutes written for other purposes, contested by sovereigns who were not consulted. Every question on this page traces to that mismatch, and the June 2026 rulemaking is the first serious attempt to resolve it by rule rather than by case.

A closing note on reading news in this category, because the volume of legal headlines exceeds the number of things that actually change.

Four distinct proceedings are live: state preemption litigation across many jurisdictions, the tribal case at the Ninth Circuit, the swaps question in a separate circuit, and the Commission’s own rulemaking. A single headline saying an exchange won or lost tells you almost nothing without identifying which. A state court declining to enjoin an exchange resolves that state and binds nobody else. A circuit ruling on preemption binds its circuit. Only the rulemaking and an act of Congress operate nationally.

The second habit worth adopting is separating what is contested from what is settled. Federal licensing, clearinghouse structure, customer fund segregation, and the surveillance obligations are settled and not seriously disputed by anyone. What is contested is narrower than the coverage implies: whether specific contract categories, principally sports, may be offered in specific places. A reader who holds that distinction will find most headlines considerably less alarming and a small number of them considerably more important than they appear.

And the third: watch the calendar rather than the rhetoric. The rulemaking has a comment docket and a decision point. The Ninth Circuit has an argued case awaiting opinion. Congress has a bill and a session. Those produce dated outcomes. Everything else is positioning.

Frequently Asked Questions

Disclaimer: This page is for information and educational purposes only and does not constitute legal or investment advice. The legal status of event contracts is subject to active litigation in multiple courts, pending rulemaking, and proposed legislation, and availability varies by jurisdiction and changes frequently. Consult qualified counsel for specific situations. Information is accurate as of July 30, 2026.