The U.S. prediction markets industry — which processed $120.7 billion in trading volume in October 2026 alone — is caught in an escalating jurisdictional war between the Commodity Futures Trading Commission and at least 10 state governments. The CFTC has filed preemption lawsuits against Arizona,...
"As a national derivatives market overseen by the CFTC, Kalshi answers to federal law, and no single state should have a veto over it." — Jacki McGavick, Kalshi Spokesperson
The U.S. prediction markets industry — which processed $120.7 billion in trading volume in October 2026 alone — is caught in an escalating jurisdictional war between the Commodity Futures Trading Commission and at least 10 state governments. The CFTC has filed preemption lawsuits against Arizona, Connecticut, Illinois, Wisconsin, Minnesota, New York, Rhode Island, New Mexico, Kentucky, and most recently Utah, arguing that event contracts traded on federally registered designated contract markets (DCMs) are swaps under the Commodity Exchange Act, placing them within the agency's exclusive jurisdiction.
Three federal appeals courts have now weighed in and reached opposite conclusions. The Third Circuit ruled in April 2026 that federal law preempts state gambling enforcement against prediction markets. The Ninth Circuit ruled in August 2026 that sports event contracts are not federally regulated swaps and states retain enforcement authority. The Sixth Circuit agreed with the Ninth in September 2026. This three-way circuit split makes Supreme Court review probable, with most legal analysts projecting a certiorari grant by early 2027 and a final opinion by June 2027.
The latest front: Utah. On October 20, Attorney General Derek Brown sued Kalshi and market maker Susquehanna, seeking up to $61.2 million in penalties and alleging a "brazen pattern of unlawful conduct." Six days later, the CFTC sued Utah. On October 29, the CFTC and DOJ filed an emergency motion for a temporary restraining order. A November 6 hearing before Judge Robert Shelby — the same judge who previously ruled against Kalshi on preemption — will set the next procedural steps.
U.S. prediction market volume reached $120.73 billion in October 2026, up 64.1% from $73.58 billion in September, according to DeFi Rate. Kalshi, the largest CFTC-registered exchange, accounted for $98.15 billion — 81.3% of reported volume — and has processed $345 billion year-to-date through November 2. Polymarket, which operates as a crypto-native platform with separate U.S. and international entities, posted $7.08 billion in monthly volume in May 2026, with international volumes significantly exceeding domestic figures.
Kalshi's annualized revenue has tripled since November 2025 to approximately $2 billion, according to PYMNTS reporting. The company carries a $40 billion valuation at a 20x revenue multiple. More than $1.4 billion was traded on midterm election markets alone through October 23, per CNN.
These numbers explain why both federal and state regulators are fighting for jurisdictional control. At roughly 3-5 basis points in fees per contract, the revenue pool generated by prediction markets is now comparable to that of mid-tier U.S. securities exchanges.
The core dispute is whether event contracts — binary bets on outcomes ranging from election results to sports scores to economic indicators — qualify as "swaps" under the Commodity Exchange Act (CEA). If they do, the CEA grants the CFTC exclusive jurisdiction, preempting state gambling laws. If they do not, states retain the authority to regulate or prohibit them under their own statutes.
The CFTC initiated this campaign in April 2026, filing suits against Arizona, Connecticut, and Illinois on the same day. Wisconsin followed in late April. Minnesota — which had passed the first state law explicitly criminalizing prediction market operation, set to take effect August 1 — was sued on May 19. The CFTC subsequently filed against New York, Rhode Island, New Mexico, Kentucky, and on October 26, Utah. The DOJ Civil Division has joined several of these actions, reinforcing the federal government's position.
The agency's legal theory is consistent across all 10 suits: event contracts meet the statutory definition of swaps, the exchanges listing them are CFTC-regulated DCMs, and therefore state gambling enforcement against these platforms is preempted. Then-Acting Chair Caroline Pham signaled this direction in early 2025, stating that "current Commission interpretations regarding event contracts are a sinkhole of legal uncertainty."
On the other side, state attorneys general argue that prediction markets function as gambling operations dressed in derivatives language. Utah's complaint characterizes Kalshi's platform as engineered "to do one thing and one thing alone, and that is to empty your wallet," in the words of Attorney General Derek Brown.
Utah's action, filed October 20 in the state's Third Judicial District Court, stands out for several reasons. It names not only Kalshi but also Susquehanna — one of the exchange's primary market makers — as a co-defendant, alleging that Susquehanna profits from illegal bets placed by Utah residents. This marks the first time a state has targeted a prediction market's institutional market-making infrastructure.
The financial claims are specific: Utah estimates that Kalshi has collected between $30.6 million and $61.2 million in fees from the state's users. As of February 2026, Kalshi had more than 32,000 verified accounts registered with Utah addresses.
Utah is seeking injunctive relief to shut down Kalshi's operations in the state and compel the platform to deploy third-party geolocation to block access by Utah residents.
The CFTC responded within six days. On October 26, it filed its preemption lawsuit in the U.S. District Court for the District of Utah. Three days later, on October 29, the CFTC and DOJ filed an emergency motion for a temporary restraining order and preliminary injunction.
The case has been assigned to Judge Robert Shelby, who entered the only final merits judgment on CEA preemption in a prediction-markets case — ruling against Kalshi. This prior ruling makes the CFTC's emergency motion a steep climb. Judge Shelby scheduled a November 6 status conference to establish a briefing schedule and set oral argument on the TRO motion.
The federal appellate landscape is now fractured:
Third Circuit (April 2026): Ruled in favor of Kalshi, holding that CFTC jurisdiction over event contracts preempts state gambling enforcement. This was the industry's strongest legal win, supporting the position that prediction markets are federally regulated derivatives, not state-level gambling.
Ninth Circuit (August 28, 2026): Ruled 3-0 against Kalshi, finding that sports event contracts are "likely sports bets rather than federally regulated swaps." The court cleared the way for Nevada to enforce its gaming laws against prediction market operators. This was the first federal appellate decision squarely holding that a prediction market's sports event contracts are subject to state gaming regulation.
Sixth Circuit (September 25, 2026): Ruled unanimously against Kalshi in the consolidated Ohio-Tennessee case, aligning with the Ninth Circuit. Kalshi filed for rehearing en banc following this ruling — its third consecutive circuit court loss after the initial Third Circuit victory.
The Supreme Court declined New Jersey's petition for certiorari in Flaherty v. KalshiEX earlier in 2026, choosing not to immediately resolve the split. However, with three circuits now on record and two sides of the argument represented, legal analysts widely expect a certiorari grant by late 2026 or early 2027. If the Court takes the case, projected timelines place merits briefing in March 2027, oral arguments in April, and a decision by June 2027.
Utah's aggressive enforcement posture has already produced operational consequences. Within days of the state filing criminal-adjacent charges, DraftKings, FanDuel, Fanatics, and PrizePicks restricted their event contract offerings in Utah.
DraftKings updated its terms on the day Utah filed suit, limiting its Utah product to daily fantasy sports Player Picks. FanDuel ceased offering event contracts related to sports, politics, and novelties in the state. Fanatics reportedly planned to stop accepting Utah trades by November 4.
Kalshi has not withdrawn from Utah. Its spokesperson stated that the platform "answers to federal law," signaling its intent to continue operating pending the outcome of federal litigation.
The pullback pattern is notable. While the largest operators are retreating from a single state, they are maintaining positions in other jurisdictions where CFTC preemption suits have produced more favorable outcomes. A federal judge in Illinois, for example, entered a preliminary injunction barring state officials from enforcing gambling laws against CFTC-regulated prediction markets — a direct contrast with Utah.
The jurisdictional fragmentation extends beyond U.S. borders. Polymarket faces restrictions in more than 40 countries as of mid-2026. Portugal's gambling regulator SRIJ ordered the platform out within 48 hours in January 2026 after more than €103 million was traded on the country's presidential election. Hungary issued a ban the same month, citing illegal gambling activity.
France, Belgium, Switzerland, Poland, Italy, and Ukraine have implemented enforcement actions ranging from ISP blocks to blacklisting. The pattern mirrors the U.S. state-by-state conflict: national and sub-national regulators are applying gambling frameworks to platforms that claim to be financial market infrastructure.
The industry has responded with lobbying. Kalshi, Polymarket, and an industry coalition spent at least $3 million in 2026 on lobbying and political donations to fight state-level regulations, according to disclosure filings.
The constitutional question at the center of this dispute — whether the CEA preempts state gambling enforcement over federally registered event contract markets — will likely be decided by the Supreme Court within 12-18 months. The circuit split is clean: the Third Circuit says yes, the Ninth and Sixth Circuits say no.
Several variables will shape the outcome:
Congressional action. The GENIUS Act and other pending legislation could clarify the regulatory framework before the Court rules. However, with midterm elections on November 4 and a potentially reconfigured Congress, legislative timelines remain uncertain.
CFTC rulemaking. In March 2026, the CFTC published an advance notice of proposed rulemaking on prediction markets. Final rules — which would define the contours of permissible event contracts — could influence the Court's analysis of the statutory framework.
State escalation. If additional states follow Utah's approach of targeting market makers alongside exchanges, the operational costs of the current legal uncertainty will rise. Baltimore has already become the first U.S. municipality to sue prediction market platforms directly.
For the $120 billion prediction markets industry, the next 12 months will determine whether these platforms operate as a unified national market under federal oversight or as a patchwork of state-by-state regimes — each with its own rules on what constitutes a legal contract and what constitutes a prohibited bet.
The prediction markets industry has grown from a niche derivatives experiment to a $120 billion monthly volume market in under two years. That growth has outpaced the legal infrastructure designed to govern it. The CFTC's 10-state litigation campaign, the opposing circuit court rulings, and Utah's escalation against both exchanges and their market makers have created a jurisdictional standoff with no clear resolution short of Supreme Court intervention.
The economic value at stake is substantial. Kalshi alone generates approximately $2 billion in annualized revenue. The platforms serve as price-discovery mechanisms for political, economic, and sporting outcomes — functions that sit uncomfortably between the definitions of financial derivatives and gambling depending on the jurisdiction.
Judge Shelby's November 6 hearing in Utah will set the next procedural markers. The circuit split will likely force the Supreme Court's hand by mid-2027. Until then, the industry operates in a state of legal fragmentation — federally licensed but state-contested, generating billions in volume while facing existential jurisdictional risk.