A coalition of 44 state attorneys general is pressing the Commodity Futures Trading Commission (CFTC) to abandon and rewrite its proposed prediction markets rule, saying the agency is trying to regulate sports betting without legal authority.
The group argues the plan would shift control away from long-established state gambling regulators and hand it to a federal agency that was never given that responsibility by Congress.
Attorneys general warn CFTC rule on prediction markets would override state protections
In comments submitted to the CFTC, the attorneys general said the proposal “would drastically expand federal regulatory authority in an area of major economic and political consequence that States have traditionally regulated.” They maintain the Commodity Exchange Act does not empower the commission to oversee sports betting through event contracts and that the proposal crosses both statutory and constitutional boundaries.
The coalition said states have spent years building licensing systems, consumer protections, responsible gaming programmes, advertising rules and enforcement frameworks tailored to their own laws. They warned those safeguards could be displaced by a single nationwide approach directed by the CFTC.
The letter argues sports wagers cannot be treated like traditional financial derivatives because they are not designed to hedge commercial risk or aid price discovery. “Sports bets are not swaps, futures, or other derivatives,” the letter states. “Sports bets serve no hedging, price-discovery, or other financial purpose consistent with financial derivatives, so they are not the type of instrument Congress envisioned would fall within the statute’s reach.”
The attorneys general also reject the commission’s reading of the Commodity Exchange Act’s event contract provisions, saying Congress intended them to limit certain gambling-related products rather than authorise them. They also object to the proposal’s suggestion that state gambling laws would be pre-empted in favour of nationally uniform derivatives regulation. “The Proposed Rule takes a sledgehammer to the States’ historic power,” the attorneys general wrote, adding that it would give the CFTC “a virtual veto over state policies.”
The filing says the proposal ignores extensive state consumer protections, including age verification, integrity monitoring, exclusion programmes and restrictions on athletes, coaches and officials. It also argues the rule conflicts with the Wire Act and the Indian Gaming Regulatory Act. “Sports bets are placed for recreation or entertainment, not as financial derivatives,” the letter states. “The CFTC lacks jurisdiction over sports bets because they are not financial derivatives.”
The dispute follows months of escalating clashes. New York Attorney General Letitia James previously warned that prediction markets lack the consumer protections required of licensed sportsbooks and cautioned operators that unlicensed sports wagering could bring civil and criminal liability.
CFTC Chairman Michael Selig has taken the opposite position, insisting event contracts serve legitimate economic purposes and recently backing Crypto.com in appellate litigation while defending the agency’s exclusive jurisdiction. The conflict widened further when the CFTC and the US Department of Justice sued several states over attempts to block sports-related event contracts, setting up a wider court battle over whether these products are federally regulated derivatives or state-regulated gambling.
The coalition ultimately urged the commission to withdraw the proposal and produce a replacement consistent with the Commodity Exchange Act and the US Constitution.
Featured image: Ajay Suresh via WikiCommons / CC BY 4.0
