California, Minnesota AGs question CFTC’s ability to regulate prediction markets

The fight over who gets to police prediction markets just got a lot more personal. California and Minnesota’s top prosecutors are now openly questioning whether the CFTC, the federal agency that oversees derivatives markets, has any business regulating platforms that, in their view, look a lot more like gambling operations than financial exchanges.

Minnesota Attorney General Keith Ellison put it bluntly on June 18: states understand the social cost of gambling better than a commodities regulator ever could. California’s attorney general echoed that argument, and together they’re building a case that the CFTC is fundamentally the wrong agency for the job.

41 states, one message

This isn’t just two states venting. On April 30, a coalition of 41 bipartisan attorneys general submitted formal comments to the CFTC, arguing that prediction markets function as de facto sportsbooks. Their core claim is straightforward: when someone bets on the outcome of an election or a sporting event through a prediction market, that’s gambling. And gambling regulation has traditionally been the domain of states, not a federal agency designed to oversee corn futures and interest rate swaps.

The attorneys general aren’t just arguing about jurisdictional authority in the abstract. They’re raising a practical concern: the CFTC has no infrastructure, expertise, or mandate to deal with gambling addiction, consumer protection for bettors, or the social externalities that come with widespread access to wagering platforms.

The Minnesota lawsuit that escalated everything

The backdrop here is an active legal battle. Minnesota enacted a law in May 2026 that effectively banned prediction market operations within the state. The CFTC responded on May 19 by suing Minnesota directly, arguing that the state law conflicts with federal authority and must be struck down.

The CFTC’s argument is rooted in federal preemption: because prediction markets trade contracts that the agency has approved and regulated, states can’t unilaterally criminalize those activities. Minnesota’s counter is equally forceful. If these platforms walk like sportsbooks and quack like sportsbooks, then they fall under the state’s long-established authority to regulate gambling.

Ellison’s June 18 comments can be read as a direct response to that lawsuit. Rather than backing down, he and his counterparts are doubling down, framing the CFTC not just as overreaching but as genuinely incapable of managing the consequences of what it’s trying to protect.

What this means for prediction market platforms and traders

Companies like Kalshi and Polymarket are caught in the crossfire. These platforms have built their businesses on the premise that prediction markets are legitimate financial products, not gambling. That distinction has been their regulatory lifeline, allowing them to operate under CFTC oversight rather than navigating the patchwork of state gambling commissions.

If states successfully establish that prediction markets fall under gambling law rather than commodities law, the entire business model faces an existential challenge. Instead of one federal regulator, platforms would need to comply with dozens of state-level frameworks, many of which don’t have a licensing pathway for this type of product. Critics also argue that these platforms currently avoid state consumer protections and tax obligations associated with traditional gambling.

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