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California and Minnesota attorneys general are challenging the Commodity Futures Trading Commission’s (CFTC) approach to regulating prediction markets, arguing the federal agency is not equipped to handle gambling-related harms such as addiction and social costs.
Minnesota Attorney General Keith Ellison told Bloomberg that states are better positioned to manage the risks associated with gambling because they already maintain regulatory systems designed to address its broader social impacts.
“We have a whole regime around it, and the CFTC doesn’t,” Ellison said, referring to Minnesota’s existing gambling laws.
The comments come amid escalating legal and regulatory conflict over prediction markets, which have grown significantly over the past 18 months and allow users to bet on outcomes ranging from sports events like the World Cup to political outcomes such as the 2028 Democratic presidential nomination.
The CFTC said it has “exclusive jurisdiction” over prediction market platforms, setting up a jurisdictional clash with states that argue gambling oversight should remain under their authority.
California Attorney General Rob Bonta described the dispute as a “classic states rights” issue, criticizing the federal regulator’s interpretation of sports-related prediction markets as derivatives. He said the agency is attempting to “squeeze this square peg into a round hole.”
Bonta also suggested the legal fight could ultimately reach the U.S. Supreme Court if federal appellate courts issue conflicting rulings. “Maybe we’ll have a split in the circuits, and when you see a split in the circuits, it can get to the US Supreme Court,” he said.
The tensions intensified after the CFTC filed a lawsuit against Minnesota last month following the state’s passage of a first-of-its-kind law banning prediction markets such as Kalshi and Polymarket.
CFTC Chairman Michael Selig said at the time that Minnesota’s law “turns lawful operators and participants in prediction markets into felons overnight.”
The agency is also advancing new rules that would allow most sports-related prediction markets while restricting wagers on war and terrorism, even as legal challenges continue.