In a letter sent to the Commodity Futures Trading Commission (CFTC), a coalition of 44 state attorneys general argued that the agency lacks the authority to regulate sports-related event contracts offered on prediction market platforms.
What Prompted the Letter?
The letter was submitted in response to the CFTC’s proposed rule, which would strengthen the agency’s claim to regulatory authority over sports event trading. Specifically, the proposal defines gaming as games of chance and activities that are contrary to the public interest.
The draft rule placed significant emphasis on the controversial sports-related event contracts, outlining the types of contracts that could ultimately be prohibited. It also introduced a definition of “gaming,” describing it as an activity undertaken for recreation or entertainment, governed by established rules, and based on measurable outcomes determined by participants’ skill during the event.
States and the CFTC have been embroiled in a jurisdictional dispute since prediction market exchanges experienced a surge in trading volumes last year. The boom was fueled largely by the growing popularity of sports-related event contracts. Trading activity reached new highs during the 2026 FIFA World Cup, with Kalshi alone seeing over 3 million new users over the duration of the event.
What Does the Letter Say?
According to the attorneys general, the proposed rule exceeds the CFTC’s statutory authority by significantly expanding federal regulatory power into an area of major economic and political importance that the states have traditionally overseen. They said the Commodity Exchange Act does not clearly grant the agency such authority.
They also contended that states have long regulated gambling, including sports betting, while the federal government has not. According to the attorneys general, the proposed rule exceeds the CFTC’s statutory powers, conflicts with constitutional principles, and is arbitrary and capricious in its current form.
The Casino Association of New Jersey (CANJ), which represents the nine casinos in Atlantic City, New Jersey, also co-authored the letter. CANJ said federal judges and members of Congress had sought explanations for what it described as the CFTC’s failure to act. According to the group, the agency had previously maintained that contracts paying out based on sports outcomes were not “gaming” contracts prohibited under existing regulations, but the proposed rule now adopts the opposite position.
In a separate letter to the CFTC, derivatives marketplace CME Group challenged the CFTC’s proposed definition. CME general counsel Jonathan Marcus wrote that the CFTC’s definition improperly characterizes “gaming” as the sporting event itself rather than the financial wagering tied to it, arguing that the approach implies the Commodity Exchange Act preempts state regulation of sports. According to Marcus, this represents a significant overreach.
In other news regarding the CFTC, recently the NFL urged it to employ further measures to safeguard the integrity of the sport.