How are prediction markets legal?

The federal licence

The licence is called a designated contract market, or DCM. The CFTC describes DCMs as the closest thing to a traditional futures exchange, and they may admit every kind of trader, including ordinary retail customers.³ The criteria for becoming one are in Section 5 of the Commodity Exchange Act, and a DCM must keep meeting 23 statutory “core principles” after it is designated.³ Trades are cleared through a separate registered derivatives clearing organization.⁴

The CFTC announced Kalshi’s designation on Nov. 4, 2020.¹ In January 2025 the CFTC amended that order so brokers (futures commission merchants) could route customer trades to it, which is how apps such as Robinhood offer Kalshi’s contracts.⁵ Polymarket took a different route back into the US: after a 2022 CFTC settlement in which it paid a $1.4 million penalty and agreed to keep blocking US users, it bought QCEX, an exchange and clearinghouse with CFTC licences, for $112 million in July 2025.^6,7,8 Its US app opened to waitlisted users in December 2025 and to everyone on iOS in May 2026.^9,10

One more rule matters for ordinary users: anyone who is not a large “eligible contract participant” may trade a swap only on, or under the rules of, a DCM.² That is why the retail prediction-market business runs through these exchanges.

How a contract gets listed

A DCM does not need the CFTC’s permission to list a new contract. It certifies to the agency that the contract complies with the law, and under CFTC Rule 40.2 it can list the contract if the CFTC receives that certification by the start of the previous business day.^11,12 The CFTC can stay a listing.¹²

The brake is the “special rule” that the 2010 Dodd-Frank Act added to the law.¹³ It lets the CFTC find that event contracts involving unlawful activity, terrorism, assassination, war or gaming are contrary to the public interest, and a contract found that way may not be listed or traded.¹¹ The CFTC wrote the rule into its regulations as Rule 40.11 in 2011, with a 90-day review process for contracts it suspects fall in those categories.^13,14

The agency has used that power. In 2012 it blocked Nadex’s political contracts as gaming.¹³ In September 2023 it blocked Kalshi’s contracts on which party would control Congress, and its chairman said approving them would have made the agency an “election cop.”^15,16 Kalshi sued and won: in September 2024 a federal judge in Washington vacated the order, holding that the CFTC had exceeded its authority and that “gaming” should be read in its ordinary sense of playing a game.^17,18 The CFTC dropped its appeal in May 2025.¹⁹ Kalshi listed its first sports contracts on Jan. 23, 2025.²⁰

A 2024 CFTC proposal that would have defined “gaming” to include contests in which athletes compete was withdrawn in February 2026.^21,22 The agency has since proposed rules treating event contracts as swaps within its jurisdiction.^23,24

Why states object

States license and tax sportsbooks; prediction markets do neither. Massachusetts’ attorney general has argued that Kalshi’s sports contracts closely resemble the wagers licensed sportsbooks offer, and that its responsible-gambling tools fall well short of what licensed operators must provide.²⁵ Arizona’s gaming regulator told Kalshi there was no meaningful difference between buying its contracts and betting with a sportsbook.²⁶ Money is part of it: New York taxes licensed sportsbooks’ gross sports-wagering revenue at 51%, and prediction markets owe no such state tax.²⁷

Geography is the other part. Online sportsbooks were banned in about 20 states in late 2025, including California and Texas, yet by the 2025 Super Bowl Kalshi offered sports contracts in all 50.^27,28

The fight in court

The platforms’ main argument is preemption: that federal law displaces state law. Courts have described two kinds that matter here. “Field” preemption means Congress has occupied a whole area; “conflict” preemption means state law gets in the way of federal law.²⁹

In April 2026 the Third Circuit sided with Kalshi against New Jersey. The majority found both kinds of preemption, treating the preempted field as trading on a designated contract market and concluding that the law’s definition of “swap” covers event contracts.²⁹ Judge Roth dissented.²⁹

The Ninth Circuit went the other way for Nevada in August 2026. It held that Kalshi’s sports contracts are likely not swaps, that Congress has not occupied the field of gambling regulation, and that it saw no conflict on the record before it.³⁰ The Sixth Circuit followed for Ohio and Tennessee in September, as reported by SBC Americas.³¹

The circuit split tracker shows every pending appeal and updates as courts rule.

Where Washington stands

The CFTC is now on the platforms’ side in court. The United States has sued or been joined against 8 states in 9 cases we track: Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York and Wisconsin. Congress has not settled it: see the bills in Congress, none of which has become law.

What happens next

A split between federal appeals courts on an important question is one of the reasons the Supreme Court gives for taking a case.³² These petitions are pending:

• New Jersey v. Kalshi (Supreme Court petition), No. 26-299: next step Nov. 9, 2026 (kalshi's response due, 18 days).
• Robinhood v. Nevada (Supreme Court petition), No. 26-338: next step Nov. 13, 2026 (responses due, 22 days).
• Crypto.com (NADEX) v. Nevada (Supreme Court petition), No. 26-344: next step Nov. 16, 2026 (responses due, 25 days).

Every dated step is on the court calendar, which you can subscribe to.

Questions

How is Kalshi legal?

Kalshi is a designated contract market regulated by the Commodity Futures Trading Commission, and it lists event contracts by certifying them to the CFTC. It argues that federal law gives the CFTC exclusive jurisdiction over trading on its exchange, which keeps state gambling laws out. Many states disagree, and federal appeals courts have split.

Why is Kalshi legal in states without sports betting?

Kalshi's position is that state gambling law does not apply to contracts traded on a federally regulated exchange. By the 2025 Super Bowl it offered sports contracts in all 50 states, including Texas and California. Courts have since let some states enforce their laws, and its sports contracts are blocked in Michigan, Nevada and Washington.

Is Polymarket legal in the US?

Polymarket's US exchange, run by QCX LLC (Polymarket US), is a CFTC-designated contract market. The original international Polymarket site agreed in a 2022 CFTC settlement to keep blocking US users.

Can states ban prediction markets?

That is the question in court. 1 federal appeals court has said federal law likely overrides state gambling law for these contracts; 2 have said it does not. 3 petitions ask the Supreme Court to decide.

This guide explains the law as courts and regulators have described it. It is not legal advice.