Federal Agency Vows to Fight States Over Prediction Market Crackdown 

This clash between federal and state authority came to a head in February 2026, according to a new legal analysis from law firm Holland & Knight. In a flurry of activity, the federal Commodity Futures Trading Commission (CFTC) — the agency that oversees financial derivatives — declared it would fight to protect its authority over prediction market platforms. At the same time, three states — Nevada, Massachusetts, and Tennessee — were each taking legal action against Kalshi, one of the biggest players in the prediction market space. The outcomes varied wildly depending on which courtroom you were in.

The central dispute is surprisingly fundamental. The CFTC says that contracts tied to sporting events are financial instruments called “swaps” — products the agency has regulated since Congress passed the Dodd-Frank Act in 2010. States say that’s just sports betting with a fancy label, and that they have had the power to regulate gambling long before the federal government even existed. Both sides have a point, and courts have not agreed on who is right.

Related: The Battle Between CFTC and State Regulators Over Prediction Markets Spreads to Capitol Hill

The Tennessee case produced the most recent ruling. On February 19, a federal judge sided with Kalshi and blocked Tennessee regulators from shutting the platform down. The court found that Kalshi’s contracts likely qualify as swaps under federal law, and that Tennessee could not enforce its own sports gambling rules against a federally regulated exchange. Nevada, however, told a different story. Courts there had previously dissolved a similar protection for Kalshi, with one judge concluding the company was engaged in an “attempt to evade state regulation.” Massachusetts landed somewhere in the middle. A lower court ruled against Kalshi, but an appeals court put that ruling on hold pending further review.

CFTC Chair Brian Selig has been outspoken in backing the platforms. The Holland & Knight analysis notes that he characterized state enforcement efforts as a “power grab” that undermines the CFTC’s regulatory primacy, asserting that these products are commodity derivatives and squarely within the CFTC’s regulatory remit.

The political dimensions are just as significant as the legal ones. More than 36 states have filed briefs in a related federal appeals court case, arguing that Congress never intended to hand Washington control over what is, in practice, sports gambling. A coalition of U.S. senators has urged the CFTC to stand down. On the other side, prediction market advocates argue the platforms offer real economic value and that the patchwork of conflicting state rules is killing innovation.

So, what happens next? The Holland & Knight analysis identifies several questions that no court has yet definitively answered. Courts are still split on whether sports-related event contracts fall under the federal definition of a swap or qualify instead for an exemption designed for gaming products. Even if they are swaps, it is unclear whether federal law fully overrides state gambling rules. And after a recent Supreme Court decision that stripped federal agencies of some interpretive power, judges may be less willing to simply defer to whatever the CFTC says its own authority covers.

With nearly 50 active cases now working their way through the legal system and no appellate court having yet resolved the core questions, the analysis concludes that Supreme Court intervention may ultimately be unavoidable. Until then, companies operating in this space face a confusing and rapidly shifting legal landscape — where the same business can be perfectly legal in one state and a criminal offense in the next.