California and Minnesota AGs Question Whether the CFTC Should Regulate Prediction Markets

A growing bloc of state attorneys general is challenging the Commodity Futures Trading Commission's role in overseeing prediction markets, arguing the products resemble gambling more than regulated financial derivatives. Minnesota Attorney General Keith Ellison said on June 18 that states are better positioned than a commodities regulator to understand and address the social costs tied to gambling. California's attorney general has made similar points, and both are pressing the view that the CFTC is the wrong agency to police these platforms. The pushback extends well beyond two states. On April 30, a bipartisan coalition of 41 state attorneys general filed formal comments with the CFTC contending that prediction markets operate as de facto sportsbooks. Their central argument: placing money on the outcome of elections or sporting events through these markets is gambling, and gambling oversight has traditionally been handled by states, not a federal derivatives regulator. The attorneys general also frame the dispute as practical, not just legal. They argue the CFTC lacks the infrastructure, expertise and mandate to handle gambling addiction, bettor-focused consumer protections and broader social harms that can accompany expanded access to wagering. The debate has intensified into active litigation in Minnesota. The state enacted a law in May 2026 that effectively banned prediction market operations within its borders. On May 19, the CFTC sued Minnesota, asserting the state law is preempted by federal authority because the agency has approved and regulates the relevant contracts. Minnesota's position is that if the platforms function like sportsbooks, they fall under the state's long-established power to regulate gambling. Ellison's June 18 remarks are widely seen as a direct rebuttal to the CFTC's lawsuit. For prediction market operators and traders, the stakes are high. Platforms such as Kalshi and Polymarket have built their regulatory strategy on treating prediction contracts as legitimate financial products under CFTC oversight, rather than gambling subject to state-by-state rules. If states succeed in reclassifying these markets under gambling law, platforms could face an existential shift: compliance would move from one federal regulator to dozens of state frameworks, many of which may not offer a clear licensing path for this type of product. Critics also say the current structure allows some platforms to sidestep state-level consumer protections and tax obligations that typically apply to traditional gambling.