Federal regulators under the Trump administration could file a “friend of the court” brief supporting Kalshi in an appeal before the US Court of Appeals for the 9th Circuit, reinforcing the position that event-based contracts fall within the Commodity Futures Trading Commission (CFTC) jurisdiction.
The filing would place the CFTC in the active case, reports the Associated Press, where Kalshi is challenging a temporary restraining order issued in Nevada.
The Nevada Gaming Control Board sued or initiated enforcement actions against Kalshi and Polymarket, alleging they were operating unlicensed sports betting businesses in the state. A federal judge granted a restraining order barring Kalshi from operating in Nevada.
Federal authority versus state gambling law
The CFTC regulates prediction markets under federal commodities law. That framework permits operators such as Kalshi to offer contracts nationwide, including in states where traditional gambling is illegal.
Several states have challenged that structure, arguing that the companies’ contracts amount to sports betting subject to state gambling statutes. State regulators contend that although prediction markets allow trading on a range of future events, most of the activity is tied to sports.
They also note that many platforms allow customers 18 years or older to participate, while state-regulated gambling generally limits participation to those 21 and older.
CFTC Chairman Michael Selig has argued that states cannot preempt federal oversight in this area.
“To those who seek to challenge our authority in this space, let me be clear: We will see you in court,” Selig said in a statement.
In an opinion piece in The Wall Street Journal, Selig wrote: “The CFTC will no longer sit idly by while overzealous state governments undermine the agency’s exclusive jurisdiction over these markets by seeking to establish statewide prohibitions on these exciting products.”
Sports contracts drive volume
Prediction markets allow customers to buy and sell contracts tied to the probability of events, ranging from weather outcomes and geopolitical developments to sports championships. Contracts are typically priced between $0.01 and $0.99, representing the implied likelihood of an outcome.
While the platforms list contracts across multiple categories, sports account for a substantial share of activity. Roughly 90% of Kalshi’s trading volume is tied to sports, while about 50% of Polymarket’s trading relates to sports events. Kalshi reported more than $1 billion in trading volume on the Super Bowl.
States challenging the platforms cite those figures in arguing that the business resembles sports wagering more than traditional hedging products.
Selig has stated that prediction markets function similarly to other futures contracts, allowing participants to hedge against risks such as adverse weather or changes in energy prices, and differ from sportsbooks, where customers wager against the house.
CFTC’s role in financial markets
The CFTC oversees commodities, futures, and derivatives markets, including oil, agricultural products, and gold. The agency has approximately 700 employees, compared with about 5,000 at the Securities and Exchange Commission.
Over the past five years, the CFTC has taken on a larger role in financial markets as cryptocurrency firms and prediction market operators have come under its jurisdiction.
Last week, Selig announced the creation of an “Innovation Advisory Committee” to assist the agency in drafting regulations covering cryptocurrencies and prediction markets. The 35-member panel includes the CEOs of Polymarket, Kalshi, Coinbase, Robinhood, FanDuel, and DraftKings. The group includes some representation from traditional finance but no consumer advocates or public interest organizations.
During his Senate confirmation hearing, Selig told senators it would be appropriate for the courts to address the central legal questions facing Kalshi and Polymarket. The agency’s court filing now places it directly in the appellate proceedings.
The administration’s position also carries political implications. Donald Trump Jr. has invested in Polymarket through his venture capital firm and serves as a strategic advisor to Kalshi.
The case has also drawn criticism from some Republican officials. Utah Gov. Spencer Cox, whose state maintains strict gambling laws, questioned whether sports-related contracts fall under commodities regulation.
“Mike, I appreciate you attempting this with a straight face, but I don’t remember the CFTC having authority over the ‘derivative market’ of LeBron James rebounds,” Cox said in a statement on Twitter. “These prediction markets you are breathlessly defending are gambling — pure and simple.”
Original article: https://www.yogonet.com/international/news/2026/02/18/117651-us-govt-to-support-prediction-markets-in-federalstate-gambling-fight
