A growing legal battle is unfolding in the United States over prediction markets, with New Mexico becoming the eighth state involved in a dispute between federal regulators and state authorities.
The Commodity Futures Trading Commission (CFTC) has filed a lawsuit against New Mexico officials, arguing that the state does not have the authority to regulate or block prediction market platforms that are already regulated at the federal level.
The lawsuit names New Mexico Governor Michelle Lujan Grisham, Attorney General Raúl Torrez, and members of the state’s Gaming Control Board. The CFTC is asking a federal court to stop New Mexico from applying state gambling laws to federally regulated prediction market exchanges.
At the center of the dispute is prediction market platform Kalshi, which allows users to trade contracts based on the outcome of future events, including sports events.
Earlier this month, New Mexico sued Kalshi, claiming that the platform was effectively offering sports betting without a license. State officials argued that Kalshi’s sports contracts function like traditional sports wagers and should be regulated under state gambling laws. They also raised concerns that users between the ages of 18 and 20 could access the platform, even though the state’s legal gambling age is 21.
The CFTC disagrees. The agency argues that these event contracts are financial products governed by federal commodities laws and fall under its exclusive authority. According to the regulator, states cannot apply separate gambling rules to products that are already regulated at the federal level.
CFTC Chairman Mike Selig said New Mexico is attempting to override long-established federal law and court precedents by treating federally regulated financial contracts as gambling products.
The conflict is not limited to New Mexico. The CFTC has already taken legal action against seven other states that challenged prediction market operators. Those states include New York, Illinois, Arizona, Connecticut, Rhode Island, Wisconsin, and Minnesota.
Recent court decisions have largely supported the federal regulator’s position. In April, a federal appeals court ruled that New Jersey could not block Kalshi’s sports-related contracts because authority over those markets belongs to the CFTC. Courts in Tennessee have also temporarily prevented state regulators from taking action against the platform.
The broader issue is whether prediction markets should operate under one national regulatory framework or be subject to different rules in every state.
However, not everyone agrees with the CFTC’s interpretation of the law.
Former SEC and CFTC Chairman Gary Gensler has publicly challenged the agency’s position. In a legal filing and recent media appearances, Gensler argued that Congress never intended sports betting contracts to be treated as financial swaps when it passed the Dodd-Frank Act in 2010.
According to Gensler, the law was designed to regulate financial instruments used for managing economic risks, not contracts based on sports outcomes. He believes sports betting should remain under state control rather than being regulated as a federal financial product.
The debate may ultimately be settled by Congress. A bipartisan group of U.S. senators has already proposed legislation that would ban sports and casino-style contracts on federally regulated prediction market platforms.
For now, the legal battle continues. The outcome could determine whether prediction markets in the United States are regulated primarily by federal authorities or remain subject to individual state gambling laws.
The decision is expected to have major implications for companies like Kalshi and the future of prediction markets across the country.
