Two bodies of law, one product
The legal fight over prediction markets is not about whether they are good or bad. It is about which of two bodies of law governs a contract on the outcome of a game, and the answer decides who licenses it, who taxes it, who can use it and who can stop it.
Gambling law in the United States is state law. Each state decides whether betting is legal, on what, through whom and at what tax rate, and the federal government's role has historically been to help states enforce their choices. Derivatives law is federal. The Commodity Exchange Act gives the Commodity Futures Trading Commission authority over futures, options and swaps, and it contains a clause stating that the commission's jurisdiction over contracts traded on a designated exchange is exclusive. A prediction market that is a designated exchange says the second body of law applies and displaces the first. A state that licenses sportsbooks says a bet is a bet, and no federal registration changes what it is.
Everything in the litigation is a variation on that argument.
The federal framework
Designation. A designated contract market is an exchange that has satisfied the CFTC's core principles: financial resources, governance, surveillance, rules against manipulation, customer protection and reporting. Designation is expensive and slow, which is why for years the only event-contract exchanges were small and academic. The venues that grew in 2024 and 2025 either obtained designation or bought an exchange that already had it.
Event contracts. The act contemplates contracts based on the occurrence of an event and gives the commission a specific power over them. A provision added in 2010 allows the CFTC to prohibit an event contract if it involves terrorism, assassination, war, gaming or an activity unlawful under state or federal law, and if the commission finds the contract contrary to the public interest. The commission's rule implementing that power is the one the disputes have turned on. "Gaming" is on the list. What gaming means, and whether the commission must act for the prohibition to bite, are the questions.
The election precedent. The first major test was not sport. In 2023 the commission refused to allow an exchange to list contracts on which party would control Congress, reasoning that they involved gaming and were contrary to the public interest. The exchange sued. In 2024 a federal court in Washington held that the commission had exceeded its authority: betting on an election was not "gaming" in the sense the statute used, and the commission had not shown the contracts to be against the public interest. An appeals court declined to block the ruling, election contracts traded through the 2024 presidential election, and in 2025 the commission dropped its appeal. That sequence established that a designated exchange could list contracts on events that every state would regard as unbettable, and it set the pattern for what followed.
Sport changes the stakes
In early 2025 the largest designated exchanges listed contracts on the outcomes of sporting events, beginning with the Super Bowl. Election contracts had annoyed regulators; sports contracts threatened an industry. Within weeks, gaming regulators in states with licensed sports betting sent cease-and-desist letters asserting that the contracts were unlicensed sports wagering under state law. The exchanges did not comply. They sued.
The exchanges' argument has three parts. First, exclusive jurisdiction: the act says the CFTC's authority over contracts on a designated exchange is exclusive, and a state law that would prohibit those contracts is preempted. Second, the gaming provision itself: Congress gave the CFTC, not the states, the power to prohibit event contracts that involve gaming, so the existence of that power shows Congress intended federal law to occupy the field. Third, uniformity: a national exchange cannot operate under fifty different rulebooks, which is precisely why Congress created a single federal regulator for derivatives.
The states' argument also has three parts. First, the gaming provision proves the opposite of what the exchanges say: Congress listed gaming and activity unlawful under state law as things the commission may prohibit, which presupposes that state law continues to define what is unlawful. Second, police powers: the regulation of gambling is a core state function that federal statutes are not read to displace without a clear statement, and the act contains none. Third, the contract itself: a yes-or-no position on which team wins, paid at one dollar, is a sports bet in every respect that matters, and calling it a swap does not change what a customer is doing.
Where the courts stand
At the time of writing, in September 2026, the litigation has produced a split.
Several federal district courts granted the exchanges preliminary injunctions in 2025, accepting the preemption argument as likely to succeed and finding that the exchanges would be irreparably harmed by state enforcement. At least one district court refused, holding that the state's reading of the gaming provision was the better one. The first appellate decisions went against the exchanges: the Ninth Circuit reversed an injunction that had protected an exchange from Nevada's enforcement, and in a separate case held that sports contracts offered on tribal land were class III gaming under the Indian Gaming Regulatory Act, a statute that gives tribes and states, not the CFTC, control over that activity. The exchange sought review by the full circuit and then by the Supreme Court, which is where the question sits.
The commission's own position shifted with the administration. Under one chair it fought election contracts; under the next it filed briefs supporting the exchanges against the states and, in at least one case, sued a state directly to block its enforcement. A regulator's litigating position is not law, but it tells the courts how the agency reads its own statute, and courts give that some weight.
A separate front is tribal. Tribes operate gaming under compacts that give them exclusivity in many states, and a contract on a game available to everyone on a phone competes with that exclusivity. Tribal governments have sued, and the class III ruling is the most consequential decision yet, because it does not depend on the preemption argument at all.
What each outcome would mean
If the exchanges win outright, a federally designated exchange may offer contracts on any event, including sport, to any adult in any state, subject only to CFTC rules, with no state licence, no state gaming tax and a minimum age of 18. Licensed sportsbooks would be competing against a product that carries a fraction of their regulatory cost, and the rational response, which several have already taken, is to become an exchange or partner with one.
If the states win outright, a contract on a sporting event is sports wagering wherever a state says it is, and an exchange must obtain a state licence, or geofence the state out, to offer it. Election and economic contracts would likely survive on the election precedent. Sports contracts would revert to being available only where sports betting is legal, through licensed operators, at 21.
The likeliest outcome is neither. A Supreme Court ruling, or a legislative fix, that draws a line between contracts with a plausible hedging or informational purpose and contracts that are wagers on games, is the resolution most lawyers on both sides expect, and the line-drawing would generate a decade of further argument.
Outside the United States
Almost everywhere else, the question has been answered quickly and in the same way. A contract that pays on the outcome of an uncertain event, offered to the public for money, is a bet, and offering it requires a gambling licence. Gambling regulators in Britain, France, Belgium, Singapore, Denmark, Lithuania and South Korea, among others, have said so, and several have ordered internet providers to block the largest crypto-native venue. Britain's regulator has stated that a prediction market serving British customers needs a betting licence like any other operator, and the licensed betting exchanges that already exist there are the model it points to.
The crypto-native venues have argued that a non-custodial platform with no local-language service is not offering anything in the country concerned. No regulator has accepted that. The venues' practical response has been to accept the blocks, serve the rest of the world and pursue the American market through a designated exchange, which is the one place the "not gambling" argument has won anything.
What to take from this lesson
The legal question is jurisdictional, not moral. The exchanges hold a federal designation and a clause that says the CFTC's jurisdiction is exclusive; the states hold the definition of gambling and a provision that names gaming as something the commission may prohibit. District courts split, the first appellate rulings favoured the states and the tribes, and the Supreme Court is the venue that matters. Outside America the argument was never seriously in doubt. Any strategy built on this product needs to be built for at least two of the three outcomes above, because nobody yet knows which one arrives.