CFTC sues Illinois, Arizona, Connecticut for trying to shutter prediction market sports bets

The U.S. Commodity Futures Trading Commission and Department of Justice filed lawsuit against Illinois, Arizona, Connecticut and various state officials on Thursday over the states efforts to shutter prediction market providers.

Illinois, alongside numerous other states, sent cease-and-desist letters to some prediction market providers, arguing that the companies were offering sports gambling products that should be regulated under state law. The CFTC has argued that prediction markets are offering swaps products, which are regulated under the federal Commodity Exchange Act and therefore are under the “exclusive jurisdiction” of that regulator.

In the lawsuit, the CFTC continued this argument, saying Illinois‘s efforts “intrudes on” the CFTC’s role, and that federal law preempts state regulations in this matter.

“Event contracts are derivative instruments that enable parties to trade on their predictions about whether a future event — which may relate to economics, or elections, or climate, or sports, or anything else of a potential financial, economic or commercial consequence — will occur,” the filing said.

The CFTC, especially under current Chairman Mike Selig, has argued that prediction markets are federally regulated, even as many of these companies expand to allow customers to place bets on sporting events. States, under both Republicans and Democrats, have pushed back. Nevadas Gaming Control Board secured a temporary restraining order against Kalshi last month, with a hearing set for Friday.

“This is not the first time states have tried to impose inconsistent and contrary obligations on market participants, but Congress specifically rejected such a fragmented patchwork of state regulations because it resulted in poorer consumer protection and increased risk of fraud and manipulation,” Selig said in a statement.

The CFTC will participate in an appeals court hearing before the Ninth Circuit later this month, in a consolidated case involving the North American Derivatives Exchange, Kalshi and Robinhood.