Same company, same federal license, and still a state lawsuit. That sounds contradictory until you see how the two legal systems overlap.
Short answer
Federal law governs commodity contracts. State law governs gambling. States argue prediction markets belong in the second bucket, not the first. That's why a federally licensed company can still end up fighting state regulators in court.
Law: Commodity Exchange Act (CEA)
Agency: Commodity Futures Trading Commission (CFTC)
License type: Designated Contract Market (DCM)
Kalshi: CFTC-licensed DCM — legally authorized to offer event contracts as commodity derivatives under federal law.
Federal position: prediction markets are commodity contracts, so the CFTC controls and state gambling laws should not apply.
Law: State gambling statutes + police power
Authority: State Attorneys General, Gaming Control Boards
Legal hook: 10th Amendment — states regulate health, safety, morals
State position: prediction markets look and operate like gambling — users risk money on uncertain outcomes for profit.
State position: prediction markets are gambling operations, so state gambling law controls and a federal license does not override it.
The Supremacy Clause makes federal law override state law in areas of federal jurisdiction. For commodity contracts, the CFTC rules. But states retain police power over gambling — and if a court decides prediction markets are gambling, the Supremacy Clause does not help. The threshold issue is classification.
Under the 10th Amendment, states have broad authority to regulate gambling as a matter of public health and morals. This is "police power." State AGs argue that letting residents risk money on uncertain outcomes — even on a CFTC-regulated platform — is still gambling, regardless of the federal label.
The Third Circuit became the first federal appeals court to weigh in on April 6, 2026, ruling 2-1 that CFTC has exclusive jurisdiction over DCM trades. But there is no Supreme Court precedent yet, and a circuit split may emerge: the 9th Circuit is hearing Nevada's case, Maryland's district court ruled against Kalshi, and cases in Washington, Massachusetts, Arizona, and New York are still testing the same core issue.
Are prediction market contracts commodity contracts (so the CFTC wins and states lose) or gambling contracts (so states win and the CFTC loses)?
Platform position (Kalshi, Robinhood)
These are commodity contracts. The CFTC reviewed and licensed them, so the Supremacy Clause should block state gambling law from applying.
State position (WA, NV, MA, AZ, NY, CT, IL, MI)
These are gambling. A federal license does not override state gambling authority. The Supremacy Clause only matters if federal law was meant to preempt state gambling regulation — and the CEA does not say that explicitly. The dissent in the Third Circuit's April 6, 2026 ruling echoed this argument, with Judge Roth writing that Kalshi's offerings are "virtually indistinguishable from the betting products available on online sportsbooks."
The Third Circuit ruled on April 6, 2026 that CFTC has exclusive jurisdiction over DCM trades — the first federal appeals court to weigh in. But a circuit split may emerge depending on the 9th Circuit's ruling in the Nevada case.
These are the states currently challenging prediction markets, along with the basic legal theory behind each action.
Court: PMs = Commodity Contracts
The CFTC wins. State bans are preempted by federal commodity law. Platforms can operate nationwide, and state gambling laws would not apply. This scenario received its strongest legal support on April 6, 2026 when the Third Circuit ruled 2-1 in KalshiEX v. Flaherty that federal commodity law preempts New Jersey gaming enforcement.
Court: PMs = Gambling Contracts
States win. Platforms would need state-by-state gambling licenses to operate legally, or exit those states. A federal license alone would not be enough.
Congress Passes Prediction Market Legislation
Congress steps in. Bipartisan bills have been introduced in both chambers to address prediction market jurisdiction directly. That's separate from the Clarity Act, which deals with digital asset market structure, not event contracts. As of April 2026, no prediction market-specific bill has passed.
Regulatory Status Note
Some platform-specific regulatory details are currently being updated to reflect the latest CFTC guidance and Third Circuit ruling. Check back for updates.
Live tracker of active state lawsuits, C&Ds, and injunctions by state.
Which federal bills could restrict or ban prediction markets — and their status.
Which states restrict or block access to prediction market platforms.
How IGRA tribal compacts add a third legal layer beyond federal vs. state.
Editorial note: The dual-sovereignty framework described here reflects constitutional law (Supremacy Clause, 10th Amendment, Commodity Exchange Act) and is editorial, not legal advice. Third Circuit ruling sourced from Reuters (Nate Raymond, April 6, 2026) and the court opinion in KalshiEX LLC v. Flaherty, No. 25-1922 (3d Cir. 2026). State litigation status is sourced from the State Prediction Market Actions tracker and related primary sources. Last updated: April 7, 2026.
