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Prediction Markets Face a US Jurisdiction Fight: A Comprehensive Guide

By jili tutorial · October 2, 2026

Prediction Markets Face a US Jurisdiction Fight: A Comprehensive Guide

Introduction: The High-Stakes Battle Over Who Regulates Prediction Markets

Prediction markets—platforms where users trade contracts on the outcome of events such as elections, sports games, or even military operations—have become a flashpoint in U.S. regulatory law. In 2026, three major players—Kalshi, Polymarket, and the Coalition for Prediction Markets—collectively spent at least $3 million on lobbying and campaign contributions at both the federal and state levels. These figures, reported by OpenSecrets on September 30, 2026, underscore an industry-wide effort to shape the rules while a fundamental legal question remains unresolved: Who has the authority to regulate prediction markets?

The answer carries enormous commercial consequences. If the platforms are deemed financial instruments, they fall under federal oversight by the Commodity Futures Trading Commission (CFTC). If they are considered gambling, they become subject to a patchwork of state laws—each with its own licensing requirements, restrictions, and potential bans. This guide unpacks the conflict, the lobbying strategies, and the likely path forward.

The CFTC’s Position: Prediction Markets as Swaps

Prediction-market companies argue that their event contracts are financial transactions known as swaps, which fall under the jurisdiction of the CFTC under the Commodity Exchange Act. In this view, platforms like Kalshi operate similarly to futures exchanges, allowing traders to hedge or speculate on probabilistic outcomes. Federal oversight would provide a single, nationwide regulatory framework, reducing compliance costs and enabling rapid scaling.

States’ Counterargument: A New Form of Casino

Many states take the opposite view. They contend that platforms offering contracts on sports, elections, and other events function like sportsbooks or casinos, and should therefore be regulated under state gambling laws. In July 2026, 44 state attorneys general signed a letter to the CFTC describing prediction markets as “a new form of casino.” State regulation would give local authorities control over consumer protection, licensing, and taxation, but it would also expose platforms to 50 different sets of rules—some of which may outright ban prediction markets.

The Commercial Stakes

The distinction is not merely academic:

This battle is now playing out in federal courts, where rulings have split, and the question is widely expected to reach the U.S. Supreme Court.

The Battle in Courts and Regulators

CFTC Lawsuits Against States

The CFTC has taken an aggressive stance, suing states that attempt to enforce gambling laws against prediction-market platforms. The commission argues that federal commodities law preempts state gambling regulation when it comes to event contracts. This preemption claim is at the heart of the jurisdictional clash.

States Fight Back: The Joint Letter

In response, state attorneys general have united. The July letter from 44 AGs urged the CFTC to back down, warning that federal overreach would undermine long-standing state authority over gambling. The letter framed prediction markets as “casino-like” and called for clear boundaries.

Split Rulings and the Supreme Court

Federal courts have so far delivered mixed verdicts. Some have sided with the CFTC, ruling that event contracts are commodities subject to federal regulation. Others have ruled that states retain the right to classify such contracts as gambling. This split makes Supreme Court review almost inevitable, though no case has yet been granted certiorari.

Kalshi’s State-Level Influence Campaign

Strategic Campaign Contributions

Kalshi has invested heavily in building relationships with state officials, particularly attorneys general and governors who will influence future regulation. In the first half of 2026:

The company also donated to a super PAC supporting Texas Attorney General Ken Paxton’s Senate run and to the campaigns of Vermont AG Charity Clark, Oregon AG Dan Rayfield, and Florida AG James Uthmeier.

Kalshi spokesperson Dani Lever stated that the company supports candidates from both parties. Clark and Rayfield told local outlets the contributions did not influence them, according to OpenSecrets.

A Broad Lobbying Presence in 41 States

Beyond campaign giving, Kalshi has built a sprawling lobbying operation. As of September 2026, it had at least one registered lobbyist in 41 states—with nearly all hires occurring since April 2026. This rapid expansion signals the company’s recognition that state-level battles are critical, regardless of the federal outcome.

California: A Major Target

In California, Kalshi spent $62,000 on lobbying in the first half of 2026. The efforts included work on three assembly bills and engagement with the governor’s and attorney general’s offices specifically on prediction-market issues.

New York: A Multi-Year Commitment

New York is another key state. Kalshi reported:

Projected total spending on the New York effort exceeds $400,000 through July 2027. The goal is not just to influence specific bills but to shape the shifting regulatory landscape.

The Connecticut Lawsuit as a Pressure Point

A recent example of that pressure is Connecticut’s lawsuit challenging Kalshi’s sports markets. The outcome of such cases will determine whether states can effectively shut down or limit platform operations within their borders.

Federal Lobbying: Another Front

Kalshi’s $1 Million Federal Campaign

Kalshi spent nearly $1 million on federal lobbying through June 30, 2026. Key moves included:

Legislative Targets

Kalshi disclosed lobbying on multiple bills:

The company also lobbied the CFTC, the Executive Office of the President, the Securities and Exchange Commission, and both chambers of Congress.

Polymarket and the Coalition

Polymarket spent $180,000 on federal lobbying in 2026 but, as of OpenSecrets’ reporting, had not registered any state lobbyists. The Coalition for Prediction Markets—which includes Kalshi alongside Robinhood, Coinbase, Crypto.com, and Underdog—has also engaged federal lobbyists and spent on California lobbying. This coordinated advocacy reflects a broader industry effort to shape the rules.

Broader Industry Context and Controversies

Allegations of Misconduct

The legal and lobbying battles have been intensified by a series of controversies:

These issues have given state regulators and lawmakers additional ammunition to argue for tight oversight.

Co-Founder Personal Contributions

Federal Election Commission filings show that Kalshi co-founders Tarek Mansour and Luana Lopes Lara collectively contributed about $1 million to Democratic and Republican recipients during the 2026 cycle—further demonstrating the industry’s bipartisan engagement.

Coordination Accusations

Industry and gambling interests have clashed over whether state-level opposition to prediction markets is coordinated. Some claim that casino lobbyists are pushing for stringent state regulation to protect their own market share, while prediction-market firms deny any coordinated effort.

What Lies Ahead

The Supreme Court’s Role

For Kalshi, maintaining a state-level presence may prove essential if the Supreme Court ultimately allows states to regulate prediction markets as gambling. The immediate legal question is: Does federal commodities law preempt state gambling rules?

If the Court rules for federal preemption, prediction markets gain a unified national framework. If it rules for states, the industry faces a patchwork of regulations—and states will need to adapt statutes originally written for sports betting, poker, and casino games to cover a much wider range of event contracts.

Adapting State Gambling Laws

If states prevail, legislatures will face the challenge of applying existing gambling laws to prediction markets. These laws were not designed for contracts on elections, weather, or geopolitical events. Lawmakers will need to decide:

Industry Strategy: Covering All Bases

The industry’s dual lobbying approach—aggressive federal engagement alongside state-level influence—reflects an acknowledgment that the outcome is uncertain. By building relationships with both state and federal officials, companies like Kalshi aim to be prepared for any regulatory reality.

Conclusion: A Defining Moment for Prediction Markets

The $3 million spent on lobbying and contributions in 2026 is just the tip of the iceberg. As the jurisdictional fight moves toward the Supreme Court, the industry is investing heavily to shape the legal landscape. Whether prediction markets flourish under federal oversight or face a fragmented state-by-state regime will have profound implications for innovation, consumer protection, and the very definition of gambling in the digital age.