A compromise between the warring parties is unlikely in the increasingly bitter regulator-versus-states battle for control of prediction markets, say experts.
The Commodity Futures Trading Commission (CFTC) has filed lawsuits against nine states whose attorneys general have attempted to block or restrict platforms such as Kalshi and Polymarket from operating in their jurisdictions.
The fight will likely head to the Supreme Court, US legal experts have previously claimed. And many observers think that only the country’s highest courts or Congress now have the power to unpick the legal tangle.
But with both sides digging in their heels, experts told CasinoBeats they do not foresee a quick or easy resolution to the dispute.
“A practical compromise is possible, but we may need to see more development in the court cases before either side is willing to concede much,” said William Walsh, a partner at Benesch Law.
The global predictions market industry is already worth around $4 billion a year. Analysts think that it will grow to $30 billion in the next four years.
But states object to platforms like Kalshi, which this week struck a partnership deal with the US pro padel league, offering sports-related contracts.
These contracts are a form of betting, states claim. And that means they should be able to apply their betting laws to prediction market platforms.
The CFTC, however, says event contracts are “financial instruments,” meaning only it can regulate Kalshi, Polymarket, and the like.
A CFTC Prediction Market Compromise Blueprint
“The pathway [to a compromise] exists if people are willing to walk it,” Adam Bjorn, the CEO of the iGaming firm Plannatech and the operator of the Prime Sportsbook and Betcris platforms, told CasinoBeats. But, he added, “that’s a big if.”
The CTFC’s existing legal cases all hinge on one key concept. That is preemption, the legal concept that federal financial regulation, as spelled out in the Commodity Exchange Act, supersedes state gambling laws.
The commission says preemption applies to prediction markets. The states say event contracts are just gambling by another name.
International legal experts agree that, given the impasse, a compromise currently appears out of reach.
Alexandra Fedotova, a legal associate at the Moscow-based law firm White Stone, said a deal that suits both parties will “not be reached in the near term.”
“It is not only about policy,” Fedotova told CasinoBeats. “There is no halfway point between ‘exclusive federal jurisdiction’ under the Commodity Exchange Act and state licensing regimes. Either preemption applies, or it does not.”
US legal history “tells us how long these federal-state standoffs take to resolve,” Fedotova said, adding that she saw no reason to expect a speedy resolution.
Sports Events Contracts: The Biggest Sticking Point
While the standoff may intensify yet further before the parties try to hash out an agreement, experts say that various middle-ground solutions already exist. And most involve some sort of climbdown from the CFTC on the thorny issue of sports contracts.
The commission’s June rulemaking has already baked in an “important nuance,” said Carl Kennedy, Partner and Co-Chair of Financial Markets and Regulation Practice at the law firm Katten Muchin Rosenman.
This could allow states to retain “authority over gambling that happens outside CFTC-regulated markets,” he added.
The rulemaking, however, “reaffirms exclusive federal oversight of CFTC-regulated prediction markets, including sports-related event contracts,” Kennedy said.
“One possible middle ground would be a form of partial preemption,” Linda Goldstein, a partner at CM Law, told CasinoBeats. In such a case, Goldstein said, the Supreme Court would need to “determine that sports-related event contracts fall under state gambling laws, while the CFTC retains exclusive jurisdiction over other types of event contracts.”
Walsh, meanwhile, said one possible compromise scenario could involve the CFTC adopting more robust standards for sports-related contracts.
These would involve “clearer listing criteria, integrity protections, and surveillance expectations.”
He also said data-sharing arrangements with sports leagues or state regulators may placate state attorneys general.
“That kind of compromise might help preserve the CFTC’s federal jurisdictional position while addressing the states’ consumer-protection and market-integrity concerns,” said Walsh.
Congress Could Play a Key Role
Peter Sanchez Guarda, the CFTC’s former Acting Associate Director and Special Counsel, told CasinoBeats that a workable compromise “would likely involve the CFTC establishing clearer […] boundaries regarding what constitutes a legitimate economic hedging for businesses versus pure retail gambling.”
This, he added, would require the commission to embark on a “pragmatic shift” in the way it drafts its future rulemakings.
But a dispute as acrimonious as this may need a “wildcard” solution, legal experts say. Some have told CasinoBeats that Congress could play such a role.
Most legal observers told CasinoBeats that only a third-party intervention can now break the deadlock.
“A compromise will likely occur through either congressional action or definitive judicial resolution,” said Kennedy.
Fedotova also agreed. “Where a genuine compromise is possible is in Congress, not between the regulators themselves,” she said. “But that requires legislation, and the political incentive to legislate will only crystallize after the Supreme Court rules on preemption.”
Until then, she concluded, the industry will continue to “operate in a regime where federal and state regulators give directly opposite answers to the same question.”
