The U.S. Commodity Futures Trading Commission (CFTC) and the Department of Justice have filed a lawsuit against the state of Illinois and several state officials after Illinois issued cease-and-desist letters aimed at shutting down sports related prediction market products.
Illinois authorities argued that certain prediction market providers were offering products similar to sports gambling and should therefore be regulated under state gambling laws. However, the CFTC countered that these offerings are not traditional wagers but financial instruments classified as swaps.
In its filing, the CFTC stated that the Commodity Exchange Act grants the agency “exclusive jurisdiction” over swaps markets. The lawsuit argues that Illinois’ enforcement actions intrude on federal authority and that federal law preempts state-level regulation in this area.
States Push Back as Prediction Markets Expand Into Sports
Federal regulators described event contracts as derivative instruments that allow participants to trade based on predictions about future outcomes. These events can include sports results, economic indicators, elections, climate developments, or other occurrences with financial or commercial consequences.
Under CFTC Chairman Mike Selig, the agency has consistently maintained that prediction markets fall under federal oversight. At the same time, state regulators across political lines have pushed back, claiming that sports-linked contracts function similarly to gambling products.
Nevada’s Gaming Control Board recently secured a temporary restraining order against Kalshi, with a related hearing scheduled soon. In addition, the CFTC is set to participate in an appeals court hearing before the Ninth Circuit, involving cases connected to the North American Derivatives Exchange, Kalshi, and Robinhood, highlighting the growing legal battle over the regulation of sports-related prediction markets.
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