CFTC and states clash again over Kalshi’s sports markets

New Mexico is facing a lawsuit from the Commodity and Futures Trading Commission (CFTC) for attempting to enforce state gaming rules on federally regulated contract markets.

The agency is intensifying a growing legal battle over whether federally regulated prediction markets can offer sports-related event contracts without complying with state gambling laws. The case is the latest flashpoint in a nationwide clash between federal regulators and states seeking to restrict platforms such as Kalshi.

The state had sued prediction market Kalshi for running an unlicensed sports gambling operation. It wanted injunctive relief to bar Kalshi from operating in the state and from continuing to market contracts tied to sporting events.

In a Friday federal filing, the CFTC moved to stop New Mexico authorities, asserting that state gambling laws do not apply to CFTC-regulated platforms. It is requesting a declaratory judgment confirming that it alone has the authority to regulate event contracts under federal law, as well as a permanent order preventing the state from enforcing laws that are preempted against its registrants. 

The CFTC insists it has exclusive jurisdiction over betting markets

According to New Mexico, Kalshi has never secured proper licensing and allowed participation from people below the legal age limit of 21. Attorney General Torrez also insisted that gaming is legal in New Mexico only when conducted under tribal-state compacts or robust state regulations that safeguard honest play. 

In the last few months, the CFTC has launched lawsuits against multiple states to secure federal control over sports-related event contracts. So far, it has sued Wisconsin, Minnesota, Illinois, Arizona, Rhode Island, Connecticut, New York and now New Mexico.

The agency’s chairman, Michael S. Selig, remarked on the latest lawsuit, “New Mexico is the latest state seeking to nullify black letter law and decades of judicial precedent by imposing state gaming laws on federally regulated derivatives exchanges subject to the CFTC’s exclusive jurisdiction.”

Additionally, he emphasized that the commission is obligated to safeguard its regulatory authority over commodity derivatives, a core responsibility that it will continue to uphold moving forward. 

In another statement, the commission added that New Mexico’s enforcement efforts undermine its authority and hinder its ability to oversee swaps and enforce the regulatory structure established by the Commodity Exchange Act. 

Major prediction markets support CFTC’s proposed rulemaking

Last week, the CFTC proposed new rules that would enable it to prohibit wagers deemed susceptible to manipulation or inconsistent with the public good. The proposal indicated that most sports-related bets would remain legal, except those involving injuries or “first-pitch” events like pitch speed. It could also bar bets tied to armed conflict, assassinations, and terrorism.

So far, some markets have received the suggestions incredibly well. A Polymarket spokesperson noted, “We are fully supportive of the CFTC’s initiative to provide clarity for prediction markets and remain committed to working toward a federal framework that protects the public and supports innovation — we look forward to commenting on the Commission’s proposed rule.”

Kalshi spokeswoman Dani Lever also asserted that bets on war-related action are already banned on the platform. Nonetheless, overall trading in prediction markets increased significantly, with suspected insiders reportedly making more than $1 million from contracts related to the Iran airstrike. 

But that aside, of late, prediction markets and federal authorities have been more active in trying to eliminate questionable wagering activity. Kalshi CEO Tarek Mansour recently announced that traders targeting high-risk markets must soon submit employment disclosure forms to prevent manipulation. 

In May, the House Oversight Chair James Comer also asked for records from Kalshi and Polymarket executives following allegations of rampant insider trading. Moreover, ex-Rep. George Santos is also facing inquiry for using Kalshi to bet about his own appearance at the State of the Union address.