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Arizona, Connecticut, and Illinois are attempting to regulate prediction markets within their borders, but they may have mistakenly roused a sleeping giant.
The Commodity Futures Trading Commission, which oversees the contracts bought and sold in prediction markets, took legal action against the three states for their regulatory attempts, according to a report from Reuters.
The CFTC argues that prediction markets are regulated at the federal level and fall outside the jurisdiction of state sports betting laws, according to an analysis from Compliance Week. This landmark lawsuit is the first of its kind and sends a clear signal to states that prediction markets remain under federal control.
CFTC is drawing a line in the sand
That message will likely frustrate various stakeholders, including the American Gaming Association and states losing tax revenue to prediction market platforms.
The AGA has taken a hard stance against platforms like Kalshi and Polymarket, arguing that contracts for sporting events are simply sports betting wagers by another name. States where prediction markets proliferate are missing out on significant tax revenue typically used to fund public programs—more than $740 million to date, according to AGA data.
North Carolina State University’s business school summarized the conflict in a March report:
“There are vastly different tax consequences,” the report noted. “North Carolina does not have an explicit tax on prediction markets, so providers are only subject to the 2.25% corporate income tax rate. That is far lower than the 18% that sports betting providers must pay.”
Furthermore, prediction markets are not currently bound by the same responsible gambling rules as sportsbooks. States with legalized sports betting typically enforce stringent guidelines for how responsible gaming resources are displayed in digital and television advertisements.
“Prediction markets bypass state and tribal oversight and claim federal regulation by the CFTC—an agency with no gambling expertise that oversees cattle futures and derivatives, not sportsbook operations and responsible gaming protocols,” the AGA noted on its website.
AGA faces membership exodus
Despite its efforts to dissuade businesses from supporting platforms like Kalshi and Polymarket, the AGA appears to be fighting a losing battle.
FanDuel and DraftKings left the association in November 2025, followed by Fanatics in December and bet365 last month. Coincidentally, FanDuel, DraftKings, and BetMGM have all recently launched their own prediction market operations.
