Prediction Markets Overview: Regulation, Litigation, and the Road to the Supreme Court

Prediction markets — platforms where participants buy and sell contracts tied to future events — have gone from academic curiosity to front-page news in barely two years. The 2024 presidential election brought these platforms into the public view, and sports-related contracts have since become a principal driver of explosive growth. Global trading volume on leading platforms accelerated sharply through 2025 and 2026, attracting the attention of federal regulators, state gaming commissions, tribal gaming authorities, and the courts alike.

That growth has also generated a collision between regulatory paradigms. Courts are thus grappling with the following question — are prediction markets federally regulated derivatives or are they state-regulated gambling — or some combination of the two? The answer carries enormous consequences for platform operators, investors, sports leagues, gaming licensees, and the consumers who trade on these exchanges.

To help clients and stakeholders navigate this fast-moving area, Foley & Lardner’s Sports and Entertainment Group has developed a comprehensive Prediction Markets Litigation Tracker.

View our Prediction Markets Litigation Trackers:

Background on Prediction Markets

Prediction markets typically allow participants to trade binary event contracts that pay out based on the occurrence or nonoccurence of specified events. Topics range from economic indicators and weather to election outcomes and — most notably — sports. Kalshi, Polymarket, and PredictIt helped popularize the concept and are among the best-known platforms.

The U.S. prediction-market sector has expanded dramatically in recent years. Currently, more than a dozen designated contract markets (DCMs) are offering or preparing to offer event contracts. Sports event contracts are now the most visible growth area in the space, with traditional online sportsbooks entering the market.

Regulatory and Legal Framework

The Commodity Exchange Act (CEA) grants the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over swaps traded on DCMs. At the same time, CEA § 5c(c)(5)(C) empowers the CFTC to prohibit event contracts that involve certain enumerated activities — including “gaming,” activity that is unlawful under federal or state law, and other activities contrary to the public interest.

Current CFTC Regulation 40.11 provides that a DCM generally may not list a swap that involves or relates to gaming, but the regulation critically does not define “gaming.” That gap is the central battleground. DCMs may list new contracts through self-certification under CFTC Regulations 38.4 and 40.2 — a process that represents the exchange’s own determination of compliance, not an affirmative CFTC approval.

The CFTC has issued numerous no-action letters granting reporting relief to DCMs operating in the prediction-market space, but these letters expressly do not address whether specific contracts comply with the gaming prohibition. The distinction matters, as federal registration alone does not guarantee that a contract is immune from challenge on the grounds that it is unauthorized “gaming.”

Key Issues in Ongoing Litigation

The litigation landscape centers on several interrelated questions.

First, do sports-related event contracts qualify as “swaps” under the CEA’s broad definition — which reaches transactions dependent on an event or contingency “associated with a potential financial, economic, or commercial consequence”?

Second, if they do qualify as swaps, does CFTC jurisdiction preempt state gaming laws?

Platforms contend that event contracts traded on CFTC-registered DCMs are federally regulated derivatives and that federal law preempts state gambling laws under both field and conflict theories. State regulators counter that federal regulation does not change the character of a sports wager. Courts have also grappled with the standard for determining when a contract “involves” or “is related to” gaming under Regulation 40.11 — a phrase the regulation itself does not elaborate upon.

Current State of Affairs: Circuit Split and Supreme Court Petitions

The federal appellate courts are divided. In KalshiEX v. Flaherty, the Third Circuit affirmed a preliminary injunction against New Jersey, holding that sports event contracts likely qualify as swaps under the CEA. The court reasoned that Congress’s decision to include gaming within the CEA’s event-contract framework — rather than excluding it entirely — demonstrated intent to keep those contracts within the CFTC’s regulatory ambit. The Third Circuit found that both field and conflict preemption barred New Jersey from enforcing its gambling laws against the platform.

The Ninth Circuit reached the opposite conclusion in KalshiEX v. Assad. That court held that sports contracts likely do not qualify as swaps, drawing a critical distinction: while a contract on whether a sporting event occurs may concern an event with genuine financial consequences, a contract on which team wins is, in the Ninth Circuit’s view, fundamentally a sports bet. The court rejected reliance on attenuated downstream financial effects — such as impacts on sponsors, advertisers, and local economies — as insufficient, reasoning that if such effects sufficed, the statute would have no limiting principle. The Ninth Circuit also rejected conflict preemption, pointing to geofencing as a practical compliance measure.

On September 25, 2026, the Sixth Circuit joined the Ninth Circuit in consolidated appeals from Ohio and Tennessee, KalshiEX v. Schuler and KalshiEX v. Orgel. The court held that Kalshi had not shown that its sports-event contracts satisfy the CEA’s definition of a “swap” and, in the alternative, that even if they were swaps, the CEA neither expressly nor impliedly preempts Ohio’s or Tennessee’s gambling laws. On October 9, 2026, Kalshi filed a petition for rehearing en banc, asking the full Sixth Circuit to rehear the panel’s decision. An additional federal appellate court ruling is expected from the Fourth Circuit in KalshiEX v. Martin.

Multiple parties have filed petitions for certiorari, asking the U.S. Supreme Court to resolve the split. All the traditional markers for Supreme Court review are present: a clear circuit split, a pure question of statutory interpretation, and significant public impact. Supreme Court review, therefore, appears likely.

The Foley & Lardner Prediction Markets Litigation Tracker

Foley & Lardner’s Sports and Entertainment Group has developed regularly updated Prediction Markets Litigation Trackers covering significant prediction-market litigation across federal jurisdictions — from trial courts through appellate proceedings — including circuit-split cases, state enforcement actions, and CFTC proceedings across more than a dozen states.

The Tracker is designed for in-house counsel, executives, investors, and operators who need to stay current on a legal landscape that is evolving on a near-weekly basis. We encourage readers to bookmark the Tracker and return to it regularly as new decisions, filings, and regulatory developments emerge.

Recent Rulemaking Activity

The CFTC’s regulatory posture has shifted markedly in recent years. In 2024, under the prior administration, the Commission proposed broad categorical bans on event contracts involving enumerated activities, including a sweeping definition of “gaming” as staking value on contests or games. That proposal drew significant opposition and was formally withdrawn in February 2026.

In its place, the CFTC issued an Advance Notice of Proposed Rulemaking in March 2026 (receiving roughly 3,500 comments). It then published its proposal in June 2026, titled “Prediction Markets; Public Interest Determination.” The proposal would replace categorical bans with a contract-specific public-interest framework and define “gaming” as recreational or entertainment activities governed by rules whose outcomes depend on participants’ luck, skill, or athletic ability. Under that framework, a contract on whether a football player scores a touchdown may involve gaming, while a contract on game attendance likely would not.

On September 28, 2026, the CFTC sent two related rules to the White House’s Office of Information and Regulatory Affairs for review, and on October 9, 2026, the Commission released them publicly. The effort reflects the CFTC’s attempt to address, through rulemaking, the jurisdictional questions that courts have been debating case by case.

The proposed rule would amend the CFTC’s regulatory definition of “swap” to expressly include “[e]vent contracts, including those based on sports-, politics-, cultural-, and weather-related events,” and is subject to a 30-day public comment period following publication in the Federal Register. The companion interim final rule, effective upon publication, excludes from the swap definition “casino-style gambling products” — such as sportsbook wagers, casino games, and other licensed games of chance — offered by state- or tribally licensed operators and not traded on an exchange or other multilateral market.

The CFTC expressly referenced the conflicting appellate decisions in these rules and stated that, if the proposal is finalized, “there would no longer be a valid basis to interpret CFTC regulations to conclude that event contracts are not swaps.” Those challenging the classification of the instruments as swaps will likely disagree with that position. Because the rules could alter the legal framework courts apply to the threshold “swap” question, some prediction market participants have filed letters or other submissions asking courts to stay or defer rulings pending the rules’ potential effectiveness. How courts weigh these rules — and whether any final rule withstands review — remains to be seen.

Forward-Looking Perspective: What to Watch

Several developments will shape prediction-markets law in the months ahead. The CFTC’s pending rulemaking on public-interest determinations could establish the first codified definition of “gaming” under the CEA, and its proposed redefinition of “swap” could bear directly on the jurisdictional questions now before the courts. A decision from the Fourth Circuit and the Supreme Court’s response to pending certiorari petitions — now informed by the Sixth Circuit’s ruling — could further define the relationship between financial products and gaming.

Moreover, market integrity concerns continue to shape the industry. As just one example, in February 2026, former U.S. Congressman George Santos placed trades on Kalshi regarding whether he would attend the State of the Union Address. In July 2026, the CFTC imposed a $35,000 civil penalty against him for manipulative trading, signaling its intent to police market integrity on these platforms. Platforms themselves have also started cracking down more forcefully; Kalshi issued its first-ever lifetime ban against Santos in August 2026. The DOJ has similarly sought criminal charges against individuals for using classified information to profit from prediction market contracts, including a U.S. soldier relating to the capture of former Venezuelan President Nicolás Maduro.

Since the United States Supreme Court decision in Murphy v. NCAA (2018), nearly forty states have legalized some form of sports gambling, making prediction markets a critical test of where that boundary lies — and who ultimately draws it.

Stay Informed

Foley & Lardner’s Sports and Entertainment Group is closely monitoring every dimension of the prediction-markets legal landscape — regulatory, legislative, and judicial. We invite you to visit our Prediction Markets Litigation Tracker for the latest developments, and to contact our team to discuss how these issues may affect your business.