April 2, 2026

Update on Prediction Markets

Jason Hicks, Chukwukpee Nzegwu Womble Bond Dickinson + Follow Contact LinkedIn Facebook X Send Embed

Since our initial client alert on prediction markets, the legal and regulatory landscape has had dramatic updates. Several developments warrant attention, including new rulings in the ongoing litigation about federal preemption, a possible wave of state enforcement actions against prediction market platforms offering sports-based event contracts, the introduction of federal legislation limiting prediction markets, action by the Commodity Future Trading Commission (“CFTC”) supporting sports-based prediction markets, the possibility of a circuit split in the federal courts of appeal, the first-ever criminal charges against a prediction market platform, and investigations into insider trading.

Congress Introduces a Bill that Would Limit Prediction Market Platforms

Congress has their eyes on prediction market platforms. On Monday, March 23, 2026, Senators John Curtis, R-Utah, and Adam Schiff, D-California, introduced a new legislation, dubbed “The Prediction Markets Are Gambling Act,” and would amend federal law so that sports and casino-style event contracts may not be offered on platforms regulated by the commission.

Federal legislation may add clarity to the current status quo and obviate the need for certain lawsuits. Although still in its infancy, courts and states may view this bipartisan action as interest by the federal legislative branch to limit what entities may engage in sports betting and other similar activities.

Kalshi’s Sports Event Contracts and the Battle Over Federal Preemption

Kalshi, a designated contract market (DCM) under the CFTC, has sparked intense legal controversy by self-registering sports event contracts under the Commodity Exchange Act. These contracts allow users to take positions on outcomes of sporting events (assuming a counterparty accepts the proposed contract), such as which teams will advance in the NCAA College Basketball Tournament or who would be the winner of the World Baseball Classic.

The core of Kalshi’s legal argument is that its sports event contracts constitute “swaps” under the Commodity Exchange Act, as amended by the Dodd-Frank Act in 2010, thereby placing them within the CFTC’s “exclusive jurisdiction” and preempting state gambling laws. The Act defines a “swap” to include any contract “that provides for any purchase, sale, payment, or delivery ... that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.”

The Commodity Exchange Act provides the CFTC with the authority to determine that an event contract is contrary to the public interest if the contract involves, among other things, assassination, war, terrorism, or gaming. Any contract determined by the CFTC to be contrary to the public interest is prohibited from being listed or made available for clearing or trading on or through a registered entity.

While Kalshi’s legal argument is based on sports event contracts being “swaps” under the Commodity Exchange Act, Kalshi has also marketed itself as the “first app for legal sports betting in all 50 states,” (KalshiEX, LLC v. Hendrick, No. 2:25-CV-00575-APG-BNW, 2025 WL 3286282, at *1 (D. Nev. Nov. 24, 2025)) a characterization that has drawn the attention of state gaming regulators nationwide. States have responded with a coordinated pushback. After Kalshi began offering sports event contracts, multiple states—including Tennessee, Ohio, Nevada, Maryland, New Jersey, New York, Massachusetts, and Connecticut—issued cease-and-desist letters demanding that Kalshi comply with state sports gambling laws, obtain licenses, and pay applicable taxes and fees. Kalshi has responded by filing lawsuits in federal court against many of these states, seeking declaratory and injunctive relief on the grounds of federal preemption.

Massachusetts took a different approach in Commonwealth v. KalshiEX LLC by bringing a state enforcement action under Massachusetts’s Sports Wagering Law—asserting that Kalshi was operating an unlicensed sports wagering platform. In denying Kalshi’s arguments for federal preemption, the Massachusetts state court required that Kalshi obtain a state sports wagering license to continue offering sports-related event contracts in Massachusetts, preserving pre-existing contracts and allowing holders to sell positions or collect settlement proceeds. Kalshi has appealed and the case remains pending.

A Split Among Federal Courts

The litigation with DCMs has produced divergent outcomes across federal district courts. In Tennessee, the Middle District granted Kalshi’s motion for a preliminary injunction, finding that sports event contracts are “swaps” under the CEA and that federal conflict preemption applies.  The court reasoned that a contract providing for payment based on whether a specified event occurs—like “one team leads another by at least 20 points”—falls squarely within the CEA’s definition of a “swap,” and found support in part from the Second Circuit’s decision in United States v. Phillips, 155 F.4th 102, 112–13 (2d Cir. 2025).

Conversely, in Nevada, the District Court initially granted Kalshi’s motion for a preliminary injunction but later dissolved that injunction after reconsidering the legal issues. The Nevada court ultimately concluded that Kalshi’s sports-related event contracts are not likely to be classified as swaps under the CEA because the word “event” means a happening that took place or will take place, not an “outcome” of that happening. The Nevada court explained, “An ordinary American interpreting the word ‘event’ would conclude that the Kentucky Derby is an event. But who wins the Kentucky Derby is an outcome of that event, not a separate event in and of itself.”

Ohio followed Nevada’s reasoning and denied Kalshi’s motion for a preliminary injunction on March 9, 2026. The Ohio court emphasized that under Kalshi's interpretation, “all contracts for payment based on the outcome of a sporting event—all sports bets—would be forced onto DCMs like Kalshi and every sportsbook in the country would be put out of business,” a result the court deemed absurd. The Ohio court also pointed to legislative history indicating that at least some members of Congress believed sports-event contracts would not be considered swaps. The District Court in Maryland reached a similar conclusion and found that the CEA does not preempt state sports gambling slaws. Several appeals are now pending before the Third, Fourth, and Ninth Circuits, with oral argument already held in some cases.

The CFTC Weighs In

Regarding the pending case in the Ninth Circuit, the CFTC filed an amicus brief supporting the appellant and arguing that event contracts traded on CFTC-regulated markets are swaps subject to the agency's exclusive jurisdiction and that state gambling laws are preempted. The CFTC emphasized that states cannot “invade the CFTC’s exclusive jurisdiction over CFTC-regulated DCMs by re-characterizing swaps trading on DCMs as illegal gambling.” Although the agency has taken the stance that its exclusive jurisdiction over the matter would provide national uniformity for prediction markets, it also acknowledged that it “is not a gaming regulator” and does not have the “statutory mandate nor specialized experience appropriate to oversee” gaming or address gaming-specific consumer protection concerns.

The CFTC has not taken final agency action regarding rules and regulations for sports event contracts, maintaining that all sports-related event contracts listed to date have been self-certified by DCMs, and the agency has made no determination regarding whether such contracts involve activities prohibited under the CEA’s special rule for event contracts. But do keep in mind that at the CFTC and SEC’s roundtable on regulatory harmonization efforts between the agencies in January, CFTC Chairman Selig indicated that a joint interpretation on the definitions of “swap” and “security-based swap” as applied to event contracts would be forthcoming.

Moreover, on March 12, 2025, the CFTC issued two significant releases on prediction markets: (1) an advisory note providing guidance to DCMs on the listing and trading of event contracts with particular focus on those related to sports, and (2) the Advance Notice of Proposed Rulemaking seeking public comment on the need to amend or issue new regulations concerning event contracts trading on prediction markets. The CFTC accepts public comments on proposed rules and other pending actions, with deadlines specified in the applicable Federal Register notice or CFTC announcement. Comments are submitted primarily through the CFTC’s online comment form by selecting the relevant item from the “All Open Comment Deadlines” list and uploading or entering the comment. All submissions become part of the public record and are published on CFTC.gov without redaction.

The CFTC’s amicus brief and announcement that it may provide more guidance in the future is not stopping States from challenging sports-based prediction contracts.  In addition to some of the victories in civil cases mentioned above, the Arizona Attorney General has moved the battle into criminal court.

Arizona’s Criminal Enforcement Action: A First

On March 18, 2026, the Attorney General of the State of Arizona brought the first criminal charges against Kalshi for allegedly operating an illegal gambling business. The focus in the Arizona action is the state’s authority to regulate gaming within its borders and as defined under state statutes. On the other hand, this action represents a significant escalation from civil enforcement efforts and raises the stakes considerably for prediction market operators. The Arizona enforcement action raises additional concerns to the insider trading/misuse of non-public material information we discussed in our previous article from the U.S. Attorney for the Southern District of New York, Jay Clayton, who recently indicated that federal prosecutors are focused on prediction markets.

Implications for Public Companies and Compliance

The rapid emergence of prediction markets has created significant compliance challenges for public companies. One of the takeaways in our previous article was the need for companies to have proactive compliance enhancements and identify with their employees how non-public material information should be treated. Several companies have reportedly expressed serious concerns over prediction markets and have begun a review of their internal policies to identify what measures may be needed to guide their employees. It is very likely that prediction markets have expanded the number of employees who may find greater use for (or temptation to use) non-public information than before.

What’s Next?

The outcome of the pending appellate cases will likely determine whether Kalshi’s model of offering sports event contracts nationwide through a federal derivatives exchange can survive state regulatory challenges. If the appellate courts side with Kalshi, the result could fundamentally alter the landscape of sports betting in the United States, effectively allowing federally registered exchanges to offer sports events contracts that look and feel like sports wagering, but without obtaining state licensure. If the courts side with the states, Kalshi and similar platforms may not be able to offer sports event contracts outside of the state-licensed sports betting regimes.

States are also looking to pass new laws, such as New York’s ORACLE Act (A9251), which would prevent prediction markets from offering contracts on “sensitive matters” like elections, sports, geopolitical conflicts, and natural disasters without first obtaining a state gambling license and Prediction Market Regulation Act (S8889), which would require prediction market operators to obtain a license from the New York Department of Financial Services, subjecting them to financial disclosure requirements, consumer protection standards, anti-money laundering rules, and regular audits.

As of March 30, 2026, the federal prosecutors in Manhattan have disclosed that they have recently met with representatives of DCMs and are discussing whether certain bets placed on prediction markets have violated insider trading or any other laws. In the interim, regardless of whether companies are directly involved in traditional sports betting or sports event contracts, given the breadth of possible event contracts, all public companies and employees with access to material non‑public information that could affect prediction market swaps should proceed with caution. Companies should be reviewing their internal policies and updating their employee handbooks to properly set guidelines and measures to prevent improper use of non-public material information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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