Are Prediction Markets Legal? State-by-State Guide

Yes, prediction markets are legal in the United States — but the full answer is more complicated than that. At the federal level, prediction markets operate as CFTC-regulated derivatives exchanges, and the current administration actively supports them. At the state level, at least 11 states have issued cease-and-desist orders, 19 federal lawsuits are pending, and federal courts are split on whether states can regulate these markets as gambling.

The legal battle is primarily about sports event contracts. Non-sports prediction markets (politics, economics, crypto) face far less opposition. Where you live and what you want to trade both matter.

This guide covers the federal regulatory framework, the state-by-state fight, platform availability, key court cases, and what it all means for you as a trader.

Last updated: March 2026

This page is for informational purposes only and does not constitute legal advice. The legal landscape is evolving rapidly — court rulings and regulatory actions may change the status described here at any time. Consult a licensed attorney for advice on your specific situation.

The Federal Framework: How Prediction Markets Are Regulated

In the US, regulated prediction markets operate as designated contract markets (DCMs) under the Commodity Futures Trading Commission. A DCM is a federally licensed exchange — the same type of entity that operates commodity futures and options markets. To obtain and maintain DCM status, an exchange must comply with 23 Core Principles covering financial safeguards, market surveillance, trade reporting, anti-manipulation protections, and customer fund segregation.

The contracts traded on these exchanges are classified as event contracts — a form of derivative (specifically, a swap) whose payoff depends on whether a specified event occurs. You buy a YES or NO contract for between $0.01 and $0.99. If you’re right, it settles at $1.00. If you’re wrong, $0. This binary structure is why they’re sometimes called “binary options,” though that term carries baggage from the unregulated offshore binary options industry.

Because event contracts are classified as swaps under the Commodity Exchange Act (CEA), they fall under the CFTC’s jurisdiction — not state gambling commissions, not the SEC. This classification is the foundation of the entire legal argument for prediction markets.

How each major platform is regulated

All three major platforms now operate under CFTC oversight. This is a significant shift from even two years ago, when Polymarket was banned from serving US customers and FanDuel Predicts didn’t exist.

The State-by-State Fight

The federal framework would be the end of the story — except that state gambling regulators disagree with it. Their argument: sports event contracts are functionally identical to sports betting, regardless of what the CFTC calls them. And states have sovereign authority to regulate gambling within their borders.

This disagreement has escalated rapidly since Kalshi launched sports event contracts in January 2025.

States that have issued cease-and-desist orders

As of March 2026, at least 11 states have issued cease-and-desist orders or taken formal enforcement action against prediction market platforms:

The enforcement actions target sports event contracts specifically. Every state regulator making this argument has the same core claim: these are sports bets dressed up as derivatives.

Why states are fighting this

Five factors are driving state opposition:

1. Revenue protection. Legal sports betting generates billions in state tax revenue. Prediction markets that offer sports contracts but pay no state gambling taxes represent a direct revenue threat.
2. Consumer protection. States argue they have a duty to protect consumers from unregulated gambling — including problem gambling safeguards, age verification, and self-exclusion programs that CFTC regulation doesn’t require.
3. Tribal compact obligations. Many states have gaming compacts with tribal nations granting exclusive or semi-exclusive gambling rights. Prediction markets potentially violate these compacts.
4. Regulatory arbitrage concerns. If prediction markets can offer sports betting under the label “financial derivatives,” it undermines every state’s regulated sports betting framework.
5. Sovereignty. States view gambling authority as a core sovereign power that a federal commodities regulator cannot override.

More than 36 states have filed amicus briefs in related federal cases asserting their right to regulate sports prediction markets — an overwhelming majority aligned against the CFTC’s position.

The 19 federal lawsuits

As of January 2026, 19 federal lawsuits are pending at various stages, per NPR reporting:

Platform Availability by State

Where you can actually trade depends on which platform and what type of contract. Here’s the current state of play.

Kalshi

Non-sports contracts (politics, economics, crypto, weather, culture): Available in approximately 43 states + DC.

Restricted states (all contract types blocked): Arizona, Illinois, Maryland, Massachusetts, Michigan, Montana, New Jersey, Ohio. These correspond to states that have issued cease-and-desist orders where Kalshi has chosen to withdraw rather than fight.

Sports event contracts: Available where Kalshi is operational, except Massachusetts (court injunction effective March 8, 2026). Even in states where Kalshi operates, the legal status of sports contracts remains actively contested.

FanDuel Predicts

Financial, economic, and commodities markets: Available in all 50 states as of January 15, 2026.

Sports event contracts: Available in 18 states — specifically states where FanDuel does not operate a traditional sportsbook. This is a deliberate strategy to avoid the argument that prediction markets are duplicating sports betting in regulated states.

If you live in one of the 32 states where FanDuel operates a sportsbook, you can still trade financial and economic markets on FanDuel Predicts — just not sports.

Polymarket

Current US status: Invite-only waitlist. Polymarket returned to the US on December 3, 2025, after a three-year ban following its $1.4M CFTC fine. The platform acquired CFTC-licensed exchange QCEX in July 2025, gaining the regulatory infrastructure for legal US operations. However, the rollout is gated — hundreds of thousands of users remain on the waitlist as of March 2026, with estimated wait times of 6–12 weeks. Industry estimates point to Q3 or Q4 2026 for full open access.

The Federal Preemption Debate

The central legal question in prediction markets right now: Does the Commodity Exchange Act’s grant of “exclusive jurisdiction” to the CFTC preempt state gambling laws?

There are two competing legal theories, and federal courts are split on which one is correct.

The platform position: federal law preempts state gambling rules

• Congress granted the CFTC exclusive jurisdiction over transactions on designated contract markets.
• Event contracts traded on DCMs are “swaps” under the CEA.
• Only the CFTC — not individual states — can determine whether specific event contracts are permissible.
• State-by-state gambling regulation of federally regulated derivatives would create the “regulatory fragmentation” that Congress sought to eliminate when it established the CFTC.

The state position: states retain gambling authority

• The CEA’s savings clause explicitly preserves state authority over gambling.
• Federal law only displaces state law where compliance with both is impossible or where state regulation poses a clear obstacle to federal objectives.
• States have sovereign authority to regulate gambling within their borders — a power that predates the CEA by centuries.
• Event contracts on sporting events are functionally indistinguishable from sports betting, which states have clear authority to regulate.

Where courts have landed

The scorecard: roughly 4–3 in favor of platforms at the district court level, but with significant reversals and contradictions. The circuit split is developing — appeals are progressing in the Third, Fourth, and Ninth Circuits.

Legal analysts widely expect this question to reach the U.S. Supreme Court. The combination of a deepening circuit split, 36+ states formally opposing the CFTC’s position, and fundamental constitutional questions about federalism and preemption makes Supreme Court review likely — though it could take years.

Key Court Cases and Regulatory Timeline

The legal landscape has moved faster in the past 18 months than in the previous decade. Here are the critical events.

2024: The election contract breakthrough

• June 2024: CFTC publishes proposed rule to prohibit political and sports-related event contracts.
• September 2024: U.S. District Court for D.C. grants Kalshi summary judgment — election-based contracts do not constitute “gaming” under the CEA. The CFTC appeals and gets an emergency stay.
• October 2024: D.C. Circuit denies the CFTC’s stay. Kalshi begins listing election contracts — the first regulated election prediction market in the US.
• Late 2024: The CFTC dismisses its own appeal. Kalshi’s election contract victory becomes final.

2025: Sports contracts trigger the state backlash

• January 2025: Kalshi launches sports event contracts. Rapid popularity growth follows.
• March–July 2025: Nevada issues the first cease-and-desist. Eight more states follow by mid-year.
• April 2025: Kalshi wins preliminary injunctions in Nevada (later reversed) and New Jersey.
• July 2025: Polymarket acquires QCEX for $112 million, gaining CFTC-regulated infrastructure. California tribes sue Kalshi and Robinhood.
• August 2025: Kalshi loses in Maryland — the first federal court to rule against preemption.
• November 2025: Nevada reverses its earlier ruling against Kalshi. FanDuel and DraftKings surrender their Nevada gaming licenses and leave the American Gaming Association, choosing prediction markets over traditional gambling.
• December 2025: Connecticut and Tennessee issue cease-and-desist orders. Polymarket relaunches in the US (invite-only). FanDuel Predicts and DraftKings Predictions go live.

2026: The federal government picks a side

• January 2026: FanDuel Predicts expands to all 50 states for financial contracts, 18 for sports. CFTC Chairman Michael Selig delivers inaugural remarks announcing a pro-prediction market regulatory agenda. Massachusetts state court issues a preliminary injunction against Kalshi sports contracts. NPR reports 19 federal lawsuits pending.
• February 2026: The CFTC formally withdraws the 2024 proposed rule that would have prohibited political and sports event contracts. The CFTC files an amicus brief in the Ninth Circuit asserting exclusive federal jurisdiction — its first intervention in such a case. Chairman Selig publishes a Wall Street Journal op-ed defending federal authority. A Tennessee federal court grants Kalshi a preliminary injunction.

The Trump Administration’s Position

The current administration has taken a strongly pro-prediction market stance, representing the most significant policy variable in the legal landscape.

Key actions

• CFTC Chairman appointment: Michael Selig was confirmed as CFTC Chairman and immediately signaled support for prediction markets. He announced plans to “support the responsible development of event contract markets” and a four-part regulatory agenda.
• Biden-era rule withdrawal: The CFTC formally withdrew a 2024 proposed rule that would have prohibited political and sports-related event contracts — a major policy reversal.
• Amicus brief: The CFTC intervened in the Ninth Circuit (North American Derivatives Exchange v. State of Nevada), arguing event contracts are swaps subject to exclusive federal jurisdiction. The Commission noted it has filed amicus briefs only eight times since 2000 — underscoring the significance of this filing.
• Innovation Advisory Committee: A 35-member committee including the CEOs of Polymarket, Kalshi, Coinbase, Robinhood, FanDuel, and DraftKings was formed to help draft prediction market regulations.
• Upcoming rulemaking: The CFTC has committed to issuing guidance and a new rulemaking establishing “a rational and coherent interpretation of the Commodity Exchange Act.” A “durable standards” memo is expected by Q2 2026.

Conflicts of interest and pushback

The administration’s position has drawn scrutiny. Donald Trump Jr. has invested in Polymarket through his venture capital firm and serves as a strategic advisor for Kalshi — both companies that the CFTC, under a Trump-appointed chairman, is actively defending in federal court.

Congressional pushback has come from Democrats: Senator Martin Heinrich (D-NM) urged the CFTC Chair to prohibit federal prediction markets and uphold state and tribal authority. Senator Adam Schiff (D-CA) questioned the rulemaking and litigation strategy.

Chairman Selig’s aggressive pro-prediction market posture also contrasts with his confirmation hearing testimony, where he said the CFTC should defer to the courts on the core legal question.

The Gaming Exclusion: The Legal Gray Area

There’s a provision in the Commodity Exchange Act (Section 5c(c)(5)(C)) that prohibits DCMs from listing event contracts that involve “activity that is unlawful under any State or Federal law” or that involve “gaming.”

This gaming exclusion is the crux of the current legal battle:

• States argue: Sports event contracts are “gaming” by any reasonable definition. A contract that pays $1 if the Chiefs win the Super Bowl is functionally a sports bet.
• Platforms and the CFTC argue: Event contracts traded on regulated exchanges are financial derivatives, not gaming. The “gaming” exclusion refers to traditional casino-style games of chance, not market-traded instruments with price discovery and hedging functions.

The Kalshi v. CFTC ruling in September 2024 — which found that election contracts are not “gaming” — was a major win for platforms. But that ruling didn’t address sports contracts directly. Courts are now grappling with whether the same logic applies to “Will the Yankees win the World Series?” as it does to “Will the Fed cut rates?”

Other Platforms and Industry Developments

Kalshi, Polymarket, and FanDuel Predicts are the three largest players, but the prediction market industry is expanding rapidly:

• DraftKings Predictions: Launched December 2025 in 38 states. Building its own DCM called “Railbird,” expected before end of 2026. Plans a “Super App” merging sportsbook, iGaming, lottery, and prediction markets. Projects a total addressable market of $55–80 billion by 2030.
• Robinhood Derivatives: Acquired the MIAXdx exchange in January 2026. Partnered with Susquehanna International Group as day-one liquidity provider. Expected to begin operations in 2026.
• Crypto.com (via Nadex): Operates through the CFTC-registered North American Derivatives Exchange. Its case against Nevada is the one where the CFTC filed its amicus brief in the Ninth Circuit.

The scale of investment signals industry confidence: Polymarket received approximately $2 billion from NYSE parent ICE. Flutter Entertainment (FanDuel’s parent) projects up to $300 million in EBITDA losses in 2026 as it invests in FanDuel Predicts. DraftKings is building an entirely new exchange infrastructure from scratch.

Class Action Lawsuits

Beyond the state regulatory battles, Kalshi faces consumer litigation. Five lawsuits have been filed by individuals (four seeking class-action status) alleging:

• Kalshi operates an illegal gambling service and misled customers about the legal nature of its platform.
• The platform worsens gambling addiction, particularly among young users.
• Kalshi marketed through sponsored influencers — including one who is 15 years old — and “enticed” users to gamble with “free” money.

The largest is a putative nationwide class action filed in November 2025 in the Southern District of New York, representing seven named plaintiffs. These cases are at early stages and none have reached trial.

What This Means for You as a Trader

The legal complexity is real, but the practical implications for most traders are manageable. Here’s what matters:

If you want to trade non-sports contracts (politics, economics, crypto)

You’re in the clearest legal territory. Non-sports event contracts face far less state opposition. Kalshi offers these in ~43 states. FanDuel Predicts offers financial markets in all 50 states. The federal government actively supports these markets, and no court has ruled against the legality of non-sports event contracts on CFTC-regulated exchanges.

If you want to trade sports event contracts

Proceed with awareness. Sports contracts are the flashpoint for the state vs. federal battle. They’re available and legal on CFTC-regulated platforms, but the legal landscape is genuinely unsettled. If you live in one of the 8 states where Kalshi has restricted access, you currently can’t trade sports (or anything else) on Kalshi. The practical risk to individual traders is low — enforcement actions have targeted platforms, not users — but the availability of sports markets in your state could change based on court rulings.

Your money is protected regardless

The regulatory uncertainty doesn’t affect fund safety on regulated platforms. Kalshi and FanDuel Predicts operate under CFTC rules requiring customer fund segregation — your money is legally separated from company funds, regardless of how the jurisdiction question resolves. If a platform were forced to exit a state, your positions would be wound down and funds returned, not confiscated.

The situation is likely to get clearer, not murkier

CFTC rulemaking is expected by mid-2026. Circuit court rulings will narrow the legal split. The Supreme Court may ultimately resolve the federal-versus-state question. In the meantime, the direction of travel is toward more regulatory clarity, not less — though the final destination (full federal preemption vs. state-by-state regulation of sports contracts) remains uncertain.

Common Questions

Are prediction markets legal in the United States?

Yes, when operated on CFTC-regulated exchanges. Kalshi, Polymarket (via QCEX), and FanDuel Predicts (via CME Group) all operate under federal oversight. However, at least 11 states have issued cease-and-desist orders — primarily targeting sports event contracts — and 19 federal lawsuits are pending as of early 2026. Non-sports contracts face far less opposition.

Which states have banned prediction markets?

No state has fully banned all prediction markets. As of March 2026, Kalshi has restricted access in 8 states following cease-and-desist orders: Arizona, Illinois, Maryland, Massachusetts, Michigan, Montana, New Jersey, and Ohio. FanDuel Predicts’ financial markets remain available in all 50 states. The restrictions primarily target sports event contracts.

What’s the difference between prediction markets and gambling?

Legally, CFTC-regulated prediction markets are classified as derivative contracts (swaps), not gambling. They trade on designated contract markets under the Commodity Exchange Act. However, multiple state gambling commissions argue that sports event contracts are functionally indistinguishable from sports betting. This classification dispute is the core question being litigated in federal courts. For a deeper comparison, see Prediction Markets vs Sports Betting.

Does the CFTC regulate prediction markets?

Yes. The CFTC regulates prediction markets that operate as designated contract markets (DCMs). Kalshi received direct DCM approval in 2020. Polymarket acquired CFTC-licensed exchange QCEX in July 2025. FanDuel Predicts operates through CME Group’s existing DCM designations. The CFTC treats event contracts as swaps, placing them under its exclusive jurisdiction. For more on how this works, see CFTC and Prediction Markets Explained.

Can states ban CFTC-regulated prediction markets?

This is the central unresolved legal question. Federal courts are split roughly 4–3 on the preemption issue. Some have ruled that CFTC jurisdiction preempts state gambling laws; others have ruled that states retain authority over sports event contracts. More than 36 states have filed amicus briefs asserting their regulatory power. The issue is widely expected to reach the Supreme Court.

Will prediction markets be banned?

A nationwide ban is unlikely. The Trump administration actively supports prediction markets — the CFTC withdrew a proposed prohibition rule, filed an amicus brief defending federal jurisdiction, and formed an advisory committee with industry CEOs. However, individual states may restrict sports event contracts within their borders, and the Supreme Court will likely have the final say on the jurisdictional question.

Is Kalshi legal in my state?

Kalshi’s non-sports contracts are available in approximately 43 states + DC. It has restricted access in 8 states: Arizona, Illinois, Maryland, Massachusetts, Michigan, Montana, New Jersey, and Ohio. Sports contracts face additional restrictions — Massachusetts issued a specific court injunction effective March 8, 2026. This list changes as court rulings are issued. For the latest, check our Kalshi review.

Is my money safe on a prediction market platform?

On CFTC-regulated platforms, yes — with important caveats. Kalshi has CFTC-mandated fund segregation: your money is legally separated from company funds. FanDuel Predicts operates through CME Group’s regulated infrastructure. No prediction market has FDIC insurance, and you can lose money on trades. The regulatory uncertainty affects which contracts are available in which states, not the safety of deposited funds. For detailed safety analysis, see our platform comparison.

Want to get started? See Best Prediction Market Platforms 2026 for our full scored comparison, or Your First Prediction Market Trade for a step-by-step walkthrough.