Betting on elections and economic data may be the newest frontier in “finance,” but it is still gambling. And while Congress has the power under the commerce clause to regulate that interstate activity, it has not clearly handed the Commodity Futures Trading Commission a blank check to bulldoze 50 states’ gambling regulatory regimes in the name of “exclusive jurisdiction” over prediction markets.
Many prediction market platforms are functionally indistinguishable from sportsbooks. They facilitate wagers by retail investors on event contracts, such as the outcome of an election, sports event, pop-culture occurrence, and even which words will appear in a politician’s speech. Kalshi’s co-founder, Tarek Mansour, aims to “financialize everything” and “create a tradable asset out of any difference in opinion.”
Despite sports-related contracts generating close to 90% of its platform fees, Kalshi denies being a sportsbook because it matches traders against each other rather than taking the other side of the bets. Imagine a poker room operator claiming that gambling regulations don’t apply because he only takes a rake.
Make no mistake: These prediction markets might not be taking the other side of the bet, but they’re collecting about $2.7 million a week in fees.
The public health ills of widespread gambling are real. Research consistently finds that men aged 18 to 34 are the demographic most likely to develop gambling disorders, drawn by risk-taking propensity and the dopamine feedback loops that digital wagering platforms are engineered to exploit. The rapid expansion of app-based sports betting following Murphy v. NCAA, the 2018 Supreme Court ruling that struck down the federal ban on state-authorized sports betting, has already produced measurable increases in gambling-disorder helpline calls across many states. Among men and boys aged 15 to 24, help-seeking contacts jumped 317% following the expansion of online sports betting and prediction market apps.
When a product looks like a bet, feels like a bet, and is marketed like a bet, state gambling regulators have every right to treat it as one. Each state that permits commercial gambling requires licensing, rigorous background checks for operators, oversight, advertising guidelines, and age verification.
The proposed CFTC power-grab will allow prediction markets to largely circumvent these state gambling regulations. CFTC Chairman Michael Selig has promised not to “sit idly by” while “overzealous state governments” treat prediction platforms as gambling outfits. The statutory hook is the Commodity Exchange Act’s granting “exclusive jurisdiction” to the CFTC over certain futures, options, and swaps involving commodities.
But the CEA hardly nullified state police powers over gambling nor federalized the issue. Congress has only granted the CFTC power to regulate these markets in narrow circumstances. In 2010, Congress amended the CEA to allow the CFTC to prohibit event contracts when “contrary to the public interest” and “similar to” gaming.
Congress simultaneously recognized that some event contracts are akin to gambling while also acknowledging that those contracts exist outside federal regulation. Now, the CFTC wants to seize the power to regulate. The impulse is not without some logic. States, bound by balanced-budget requirements, have grown dependent on gambling tax revenues, creating a perverse incentive: The same legislatures that might otherwise protect their citizens from predatory wagering platforms have a fiscal stake in their proliferation.
The states are as addicted to the revenue stream as problem gamblers are to the dopamine hit of betting. But this dynamic does not justify the CFTC’s power grab. Allowing the CFTC to unilaterally expand its jurisdiction to encompass legalized gambling across all 50 states still overrides the choices voters and legislatures prefer. This flips federalism on its head.
The courts aren’t buying it.
A Suffolk County judge in Massachusetts recently refused to enjoin the state’s gaming regulator from treating Kalshi’s sports event contracts as gambling, rejecting as “overly broad” the claim that CFTC oversight preempts state licensing. In Nevada, a federal district judge dissolved a preliminary injunction he had initially granted Kalshi, concluding that certain sports-related event contracts “closely resemble” traditional sportsbook bets. A New Jersey federal court sided with Kalshi at the preliminary injunction stage but emphasized the merits remain unsettled. The common thread: Courts are demanding clear statutory authority before allowing a federal agency to displace long-standing state police powers.
The constitutional path forward is straightforward: Congress can use its commerce clause power under Murphy v. NCAA to legislate a clear national framework for prediction markets. It could also expressly preempt state gambling laws. What should not happen is the transformation of a 90-year-old commodity futures statute into a de facto federal gambling code through aggressive interpretation and strategic litigation, without a single congressional vote.
Congress has not stripped states of their traditional authority over gambling, and it has never amended the CEA to declare political or sporting event contracts as derivatives. The CFTC should stop acting otherwise.
Joel Griffith is a senior fellow in the Plymouth Institute for Free Enterprise at Advancing American Freedom Foundation.