A coalition of 44 state attorneys general has formally opposed the Commodity Futures Trading Commission’s (CFTC) proposed event contract rule, arguing the federal agency does not have the authority to regulate prediction markets. The letter was submitted on Monday as the public comment period ended, marking the first major challenge to the CFTC’s push for a regulatory structure for platforms offering sports related contracts.
Ohio Attorney General Andy Wilson led the coalition, saying the proposal oversteps the CFTC’s legal powers, goes against the Constitution, and would be arbitrary and capricious. The group urged the Commission to withdraw the proposal and rewrite it, insisting that sports betting has always been handled by individual states and not by federal derivatives laws.
States Oppose Federal Oversight of Sports Related Event Contracts
The attorneys general said the rule would erode states’ long standing control over gambling regulation. Florida, Georgia, New Hampshire, Missouri, and Texas did not sign the letter and the remaining 44 states raised concerns about federal control shifting away from state governments.
The coalition warned “the proposal takes a sledgehammer to the states’ historic power” by letting the CFTC decide what gambling is allowed, where it is permitted, and how it works. That, they argued, would replace the current state based system regulating sports betting.
They laid out three legal objections. First, the group said the CFTC lacks a clear mandate under the Commodity Exchange Act to regulate sports event contracts. Second, they claimed the proposal breaks the Administrative Procedure Act for being arbitrary and capricious. Third, the letter cited the non-delegation doctrine, stating the proposal would violate constitutional limits if put in place.
The attorneys general stressed sports betting is strictly a state issue and should remain governed by the state laws instead of federal derivatives regulation. They called for a rethink and for the CFTC to rewrite the rule to respect state authority.
Prediction Markets Face Growing Legal and Regulatory Debate
This dispute comes as prediction market exchanges gain traction. Trading activity surged during the 2026 FIFA World Cup. Bettors Insider reported weekly trading volume hit $12.2 billion in June, with sports contracts making up $5.8 billion.
Sports related contracts now rival traditional sportsbooks, attracting casual bettors who are becoming frequent traders. States argue these products are essentially sports betting and belong under gambling laws, but the CFTC insists they qualify as swaps and should be federally regulated as derivatives. The CFTC has already leaned on federal preemption in legal battles with nine states claiming exclusive jurisdiction over these contracts.
Lawmakers have been involved too. On Thursday, Rep. Dusty Johnson defended the federal stance, calling derivatives financial tools not wagers. He said, “Derivatives are tools. They’re a means to an end. They’re not an end themselves. While products aren’t regulated on merit, they should, according to the CEA, serve a purpose, whether managing risk or surfacing useful information. They’re not wagers, and the CFTC is not a gambling regulator”.
Johnson also said the Commission is not responsible for gaming regulations and prediction markets should not offer wagers. The draft rule, published last month, defines gaming as recreation governed by rules, with outcomes measured by skill. It also suggests restrictions on sports contracts. The coalition argued prediction markets bypass the safety net built into licensed sports betting, things like licensing, consumer protection, age limit, responsible gambling programs, and taxes.
Legal fights over prediction markets have played out differently across the country. In April, the Third Circuit Court of Appeals upheld federal preemption in Kalshi’s case against New Jersey. But in June, a Michigan judge decided Kalshi could not offer sports bets in the state. Just Monday, a federal judge in Minnesota temporarily blocked a statewide ban on prediction markets set to start Saturday. These mixed legal decisions keep fueling debate about whether prediction market contracts are federally regulated derivatives or state regulated sports wagers.
