CFTC Sues Utah to Block State Interference in Prediction Markets

The gloves are off in Utah, where the CFTC has announced it is suing the state over its attempts to regulate prediction markets.

It’s Round 12 (or is it 15?) of the ongoing prize title fight between prediction markets’ regulatory body and one of the most anti-gambling states in the U.S. How this round will end with the judges’ score is anyone’s guess.

The Commodity Futures Trading Commission (CFTC) announced yesterday it had filed a lawsuit against Utah over its efforts to control the markets. Utah has strict anti-gambling rules and sees prediction markets as “illegal gambling”.

CFTC ‘Has the Expertise’ to Defend ‘Exclusive Jurisdiction’

In what must be the 1000th press release CFTC chair Michael Selig has written this year, he reiterated the body’s jurisdiction over prediction markets.

Selig said that the CFTC has the “expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives.”

The response came after Utah sued Kalshi late last week, with the state attorney general declaring prediction markets to be a “public nuisance”.

The AG, Derek Brown, said that Kalshi had been running “a sportsbook” in Utah since “at least 2024”.

The Endless Sportsbook v Prediction Markets Argument

That will be news to the prediction markets and the CFTC, who continue to maintain that they differ from online sportsbooks. Where sports betting is controlled by a central odds compiler, prediction exchanges facilitate trades between customers. The exchange simply takes a fee of every “event contract” bought and sold.

States with regulated sports betting industries, including Connecticut and New Jersey, have complained that Kalshi and others violate state law. If it looks like a sports bet and walks like a sports bet, they say, it must be a sports bet.

Utah has gone further and declared prediction exchanges to be outright illegal betting. Utah is one of the only states in the union with no regulated gambling at all.

Cruz to Propose New Predictions Bill

One way out of the mess is to geofence sports contracts in states that have regulated betting.

Coinbase this month halted sports event contracts in Michigan in response to legal threats there. Kalshi and Robinhood also chose to shut down specific markets in the state.

However, Senator Ted Cruz is going one step further with a proposed bill that offers a new solution.

Cruz’s bill would give state gambling regulators power to license sports event contracts. Financial swaps or trades on crypto and oil would stay under CFTC regulation.

State regulators would likely welcome the legal clarity. It would also provide tribal communities security and the power to partner with prediction exchanges separately from state gaming commission.

How the prediction markets will react is another matter. Having to carve up their platforms on a state-by-state basis could be messy.

In any case, a change in the balance of power after the midterms could torpedo Cruz’s bill entirely.

Kalshi Boss Warns of Exodus

Kalshi has already warned of an existential crisis for prediction markets should states gain too much control.

Tarek Mansour said at the DC Fintech Week conference this month that a one-size-fits-all model works better than fragmented state regulation. He also warned that prediction markets could move offshore if the legal situation worsens for the exchanges.

It’s unclear how that would sit with the CFTC, or how it would affect prediction exchanges’ many sporting sponsor deals.