Are Prediction Markets Legal?

Prediction markets can be legal in the United States, but their legal status depends on the platform, the type of event contract and where the user is located. Federally regulated exchanges can list event contracts under the Commodity Exchange Act and Commodity Futures Trading Commission (CFTC) oversight, subject to applicable federal rules.

The biggest legal dispute involves the relationship between federal derivatives regulation and state gambling laws. Some states argue that certain sports event contracts amount to sports wagering and must comply with state gambling requirements. Prediction market operators have argued that contracts offered through federally regulated exchanges fall under federal commodities law instead. Courts and regulators continue to address where that boundary lies.

Canada has a different regulatory framework. Canadian securities regulators have said that event contracts that qualify as securities or derivatives must comply with applicable securities and derivatives laws. In August 2026, the Canadian Securities Administrators (CSA) and Canadian Investment Regulatory Organization (CIRO) also clarified that sports- and entertainment-related event contracts should not be regulated under securities and derivatives legislation, while their assessment of other types of event contracts continues.

This guide explains why prediction markets can operate legally, how CFTC regulation works in the U.S., why states are challenging certain event contracts, how the rules differ in Canada and what the changing regulatory landscape means for prediction market users.

This page provides general educational information and does not constitute legal advice. Prediction market laws, regulations and platform availability can change, so check the current rules and platform eligibility requirements that apply in your jurisdiction.

What Laws Govern Prediction Markets in the United States?

Prediction markets in the United States can fall under federal derivatives law, while certain event contracts, particularly those involving sports, have also prompted challenges under state gambling laws. This overlap is at the centre of the current debate over how prediction markets should be regulated and which level of government has authority over them.

Federal Regulation

At the federal level, the Commodity Futures Trading Commission (CFTC) regulates U.S. derivatives markets under the Commodity Exchange Act (CEA). Prediction markets can offer event contracts through CFTC-regulated market structures, subject to applicable federal requirements.

Event contracts generally have payouts determined by whether a specified event or outcome occurs. Many prediction markets use binary Yes-or-No contracts, although the precise structure and rules vary by platform and market.

For more read our guide: How prediction markets work.

Event contracts can reference outcomes including:

• Economic events: Federal Reserve decisions, inflation and other economic indicators
• Election outcomes: Presidential, congressional, and gubernatorial races
• Government and policy events: Legislation, government actions and other defined outcomes
• Sports: Games, tournaments and other sports-related events
• Entertainment and cultural events: Awards and other measurable outcomes

CFTC-regulated exchanges must comply with federal requirements governing areas such as market integrity, surveillance, contract rules and trading practices.​

The Gambling vs. Derivatives Debate

The central legal dispute surrounding prediction markets is not whether every event contract is inherently legal or illegal. It is which contracts can be offered under federal derivatives law and whether states can separately regulate certain contracts as gambling.

Section 5c(c)(5)(C) of the Commodity Exchange Act identifies several categories of activity that receive particular scrutiny: activity unlawful under federal or state law, terrorism, assassination, war, gaming and other similar activities determined by the CFTC.

If an event contract involves one of those categories, the CFTC may determine that the contract is contrary to the public interest and restrict it from being traded or cleared through a registered entity.

Sports contracts have become particularly contentious because of the meaning of “gaming.” State regulators have argued that contracts based on sporting events can constitute sports wagering and therefore fall within state gambling laws and licensing regimes.

Prediction market exchanges have argued that event contracts listed on federally regulated derivatives exchanges fall within the CFTC's jurisdiction under federal commodities law and cannot simply be reclassified by states as sportsbook wagers.

That disagreement has produced litigation over the respective powers of federal derivatives regulators and state gambling authorities. The outcome matters because it could determine where certain prediction market contracts can be offered and which regulators have authority over them. TO learn more, check out our guide: how to read prediction market odds.

The Role of the CFTC in Prediction Markets

The Commodity Futures Trading Commission is the federal agency responsible for regulating U.S. derivatives markets. Its role in prediction markets includes overseeing registered exchanges and other regulated entities, reviewing applicable event-contract rules and enforcing federal requirements intended to protect market integrity.

How CFTC Oversight of Event Contracts Developed

The CFTC's involvement with prediction markets predates today's commercial platforms. In 1992, CFTC staff granted limited no-action relief allowing the University of Iowa to operate an experimental, nonprofit political prediction market. That relief was expanded in 1993 for the Iowa Electronic Markets under specified conditions.

Importantly, this early no-action relief did not establish that all prediction markets were federally authorized. It meant CFTC staff would not recommend enforcement action against the academic market provided it operated within the conditions of the relief.

The regulatory framework changed significantly with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which added the event-contract provisions now found in Section 5c(c)(5)(C) of the Commodity Exchange Act.

Since then, the CFTC has had to determine how those provisions apply as commercial prediction markets have expanded into politics, sports, economics and other real-world events.

How CFTC Prediction Market Policy Changed in 2026

The CFTC changed direction on event-contract regulation in 2026.

In February, the Commission withdrew a 2024 proposal that would have expanded restrictions on certain event contracts, including a proposed definition of “gaming” that covered sports and political contests. The CFTC also withdrew a 2025 staff advisory addressing sports-related event contracts.

The Commission subsequently began developing a new regulatory framework for prediction markets. In March 2026, it sought public input on event-contract regulation, and in June it proposed new rules for evaluating contracts involving activities identified in Section 5c(c)(5)(C).

Under the June 2026 proposal, contracts involving gaming or another enumerated activity would be evaluated through a structured process that includes a public-interest assessment. The proposal does not simply declare every sports or gaming-related event contract legal or illegal; it establishes a framework for determining how the statutory restrictions should apply.

At the same time, the CFTC has taken the position in ongoing litigation that it has exclusive jurisdiction over prediction markets offered through CFTC-regulated Designated Contract Markets. State regulators have disputed that interpretation in cases involving sports event contracts.

That disagreement remains one of the most important unresolved legal questions facing prediction markets in the United States.

Are CFTC-Regulated Prediction Markets Legal in Every State?

CFTC registration provides prediction market exchanges with a federal regulatory framework, but it does not currently mean that every type of event contract is undisputedly legal in every state.

Kalshi, for example, has been a CFTC-designated Designated Contract Market (DCM) since 2020. Other prediction market products can also reach users through CFTC-regulated exchanges and intermediaries.

The CFTC's position is that Congress gave it exclusive jurisdiction over derivatives markets regulated under the Commodity Exchange Act and that states cannot apply their gambling laws in ways that interfere with federally regulated event-contract markets.

Several states disagree, particularly when prediction markets offer contracts based on sporting events. State regulators have argued that these products can constitute sports wagering and should therefore comply with state gambling laws, licensing requirements and consumer protections.

This disagreement has produced one of the most important legal questions facing prediction markets: Does federal derivatives law preempt state gambling laws when a CFTC-regulated exchange offers sports event contracts?

Federal Courts Have Reached Different Conclusions

The courts have not produced a uniform answer.

In April 2026, the U.S. Court of Appeals for the Third Circuit ruled in Kalshi's favour in litigation involving New Jersey, supporting Kalshi's position that federal law preempted the state's attempt to regulate its sports event contracts.

But the legal picture changed again in August. The U.S. Court of Appeals for the Ninth Circuit concluded in litigation involving Nevada that the Commodity Exchange Act likely does not preempt Nevada's gaming regulations as applied to Kalshi's sports event contracts.

The differing appellate decisions have increased the importance of the federal preemption question.

The Prediction Market Dispute Has Reached the Supreme Court

On September 2, 2026, New Jersey regulators filed a petition asking the U.S. Supreme Court to review the Third Circuit's decision involving Kalshi.

The filing does not mean the Supreme Court has agreed to hear the case. The Court must first decide whether to grant the petition. Until the Supreme Court acts or further litigation resolves the issue, the extent to which federal law prevents states from applying gambling laws to federally regulated sports event contracts remains contested.

The CFTC, meanwhile, continues to assert that federally regulated prediction markets fall within its exclusive jurisdiction. In 2026, the agency filed lawsuits and briefs in multiple jurisdictions challenging state attempts to regulate CFTC-registered prediction markets.

For users, the practical result is that CFTC regulation and state availability are not the same thing. A platform may operate within the federal derivatives framework while still facing state enforcement actions, court orders or restrictions affecting particular markets or jurisdictions.

Are Prediction Markets Legal in Every State?

There is no simple list of states where prediction markets are universally legal or illegal. Availability depends on the platform, the type of event contract being offered and an ongoing dispute over whether federal derivatives law prevents states from applying their own gambling laws to CFTC-regulated prediction markets.

Sports event contracts have attracted the most state scrutiny. Regulators in several states argue that contracts based on sporting events function as sports wagering and should therefore comply with state licensing, consumer protection, taxation and age requirements.

The CFTC takes a different position. It argues that event contracts offered through federally regulated derivatives exchanges fall within its exclusive jurisdiction and that states cannot use gambling laws to interfere with CFTC-regulated markets. That disagreement has resulted in lawsuits, enforcement actions and differing court decisions across the country.

State legislatures are also becoming more involved. In 2026, at least 15 states considered prediction-market legislation covering issues including taxation, sports event contracts, political markets, access by minors and the use of nonpublic information. Six states enacted prediction-market-related legislation during the year.

As a result, prediction market status is better understood through several broad categories rather than a permanent legal-or-illegal list:

Last updated: September, 2026. Prediction-market laws and court proceedings are changing rapidly. A state not listed above should not be interpreted as having expressly legalized or prohibited prediction markets.

The Future of Prediction Market Regulation

Prediction market regulation remains unsettled, but several developments in 2026 have brought the industry closer to answers on how event contracts will be regulated in the United States.

The most important issues to watch are the CFTC's proposed event-contract rules, ongoing federal and state litigation, the Supreme Court petition involving New Jersey and Kalshi, and increasing state legislative activity.

New CFTC Event Contract Rules

The CFTC has already moved beyond its earlier announcement that new prediction market rules were coming.

In March 2026, the Commission opened an Advance Notice of Proposed Rulemaking seeking public input on prediction markets. On June 10, it followed with a formal proposed rule addressing event contracts involving activities identified in Section 5c(c)(5)(C) of the Commodity Exchange Act, including gaming.

The proposal would establish a structured process for determining whether a contract involves one of those specified activities and, if so, whether the contract is contrary to the public interest.

Rather than declaring entire categories of prediction markets automatically permitted or prohibited, the proposed framework would allow relevant contracts to be evaluated under defined criteria and procedures.

The CFTC separately proposed updated data-reporting requirements for certain event contracts in June.

These proposals are not yet final rules, meaning the federal regulatory framework can still change before the rulemaking process is completed.

Federal and State Litigation Continues

Court cases remain just as important as CFTC rulemaking.

States have continued trying to apply gambling and gaming laws to prediction market products, while the CFTC and prediction market operators have challenged those efforts under federal derivatives law.

The resulting cases have produced differing interpretations of federal preemption and the extent to which states retain authority over sports event contracts offered through CFTC-regulated markets.

Until those disputes are resolved, prediction market availability may continue to vary by jurisdiction, platform and contract type.

The Supreme Court Could Address the Federal-State Dispute

The possibility of Supreme Court involvement is no longer hypothetical.

On September 2, 2026, New Jersey regulators filed a petition asking the U.S. Supreme Court to review a federal appellate decision involving Kalshi and the application of state gambling laws to federally regulated event contracts.

The petition was docketed on September 8. The Supreme Court has not agreed to hear the case, and filing a petition does not guarantee that it will.

If the Court grants review, however, the case could provide important guidance on the division of authority between the CFTC and state gambling regulators.

States Are Developing Their Own Prediction Market Rules

State legislatures are also responding independently of the courts.

At least 15 states addressed prediction-market legislation during the 2026 legislative year, according to the National Conference of State Legislatures. Six enacted prediction-market-related measures.

The approaches vary considerably. Some states have considered prohibitions or restrictions on particular prediction market activities, while others have addressed taxation, access by public officials, political markets, sports contracts or other consumer and integrity concerns.

This means there is not yet a single state-level approach to prediction markets. States are experimenting with different responses while the larger question of federal preemption remains unresolved.

What This Means for Prediction Market Users

For now, prediction market regulation remains a combination of federal oversight, state action and ongoing litigation.

A platform's CFTC-regulated status does not necessarily mean that every contract it offers is available without challenge in every state. Likewise, a state taking enforcement action does not by itself resolve the broader question of whether federal law ultimately preempts that state's restrictions.

Users should therefore check both the platform's current eligibility requirements and any restrictions applying in their jurisdiction before trading.

The legal landscape is changing quickly, and court decisions, CFTC rule making and state legislation could continue to change where particular prediction market products are available.