Meta description: The CFTC’s June proposal and a July Minnesota injunction sharpen the federal-state fight over sports event contracts and gaming law.

Tags: CFTC, Kalshi, Polymarket US, State Attorneys General, Commodity Exchange Act, Minnesota

Market platform: none-if-cross-platform

Category: Regulation

The Commodity Futures Trading Commission’s prediction-market fight now has two live tracks: a June 12 proposed rule on public-interest review and federal lawsuits testing whether states can apply gambling laws to CFTC-registered exchanges. A July 27 Minnesota injunction gave the federal-preemption side an early win, but the rulemaking record shows states are still pressing for limits.

What did the CFTC propose in June 2026?

The CFTC issued a Notice of Proposed Rulemaking titled “Prediction Markets; Public Interest Determinations,” published in the Federal Register on June 12, 2026, at 91 Fed. Reg. 35806 under document number 2026-11854. The comment deadline was July 27, 2026.

The proposal addresses event-contract derivatives traded on CFTC-registered entities. It focuses on Commodity Exchange Act section 5c(c)(5)(C), which covers event contracts that involve activity unlawful under federal or state law, terrorism, assassination, war, gaming, or other similar activity determined by the CFTC to be contrary to the public interest.

The Federal Register notice says the CFTC is proposing amendments to clarify which event contracts may be subject to a public-interest determination, to set out factors the Commission would apply, to define “gaming,” and to specify when an event contract “involves” an underlying activity. The proposal does not approve every disputed sports or cultural market. It builds the agency process for deciding when a CFTC-regulated venue may list a contract and when the Commission may bar one.

The stakes are commercial as well as legal. The same products that exchanges describe as federally regulated derivatives can look to state officials like sportsbook-style wagering, especially when contracts reference sports outcomes, awards, politics or entertainment events. That tension is now being fought in rulemaking comments and in federal court.

Why are states fighting the CFTC’s approach?

State officials argue that the CFTC’s framework would weaken state gambling authority by treating sports-related prediction markets as federally regulated event contracts. A July 27 comment letter submitted to the CFTC by a coalition of 44 state attorneys general, led by Ohio Attorney General Andy Wilson, argued that the proposed rule exceeds the agency’s authority under the Commodity Exchange Act.

The states’ position is that sports wagering has historically been licensed, taxed and restricted by states, while the CFTC regulates derivatives markets. Prediction-market operators and the CFTC argue that contracts listed on designated contract markets fall under the federal commodities framework. The states say that classification should not erase their authority over gambling products merely because the contracts trade on federally registered venues.

The CFTC has taken the opposite position in court. In Release No. 9206-26, issued April 2, 2026, the agency said it filed lawsuits challenging actions by Arizona, Connecticut and Illinois against CFTC-registered designated contract markets. The CFTC said the complaints sought declaratory judgments that federal law gives the agency exclusive authority over event contracts and permanent injunctions against state enforcement of preempted laws.

The Arizona case moved first. In United States of America et al. v. State of Arizona et al., No. 2:26-cv-02246, later consolidated with KalshiEX LLC v. Johnson et al., No. CV-26-01715-PHX-MTL, the U.S. District Court for the District of Arizona granted a temporary restraining order on April 10, 2026. The order barred Arizona from enforcing its gambling laws through criminal or civil actions tied to event contracts listed on CFTC-regulated designated contract markets, according to the court order and CFTC Release No. 9211-26.

What changed in Minnesota?

Minnesota became the clearest near-term test because its 2026 law would have made operating or assisting in the operation of a prediction market a felony. The CFTC sued Minnesota on May 19, 2026, seeking to block the law before its August 1 effective date, according to CFTC Release No. 9233-26.

On July 27, U.S. District Judge Katherine Menendez granted preliminary injunction motions filed by the CFTC, Kalshi and Polymarket. In United States of America v. State of Minnesota, No. 0:26-cv-02661, the District of Minnesota enjoined the state from enforcing Minn. Stat. section 609.7615, as amended and adopted by SF 3432, against entities registered as designated contract markets by the CFTC until a final merits decision.

That order does not end the Minnesota case. It does, however, keep the state law from taking effect against CFTC-registered DCMs while the case proceeds. For exchanges, the ruling preserves access to Minnesota for now. For state regulators, it raises the cost of using broad criminal statutes against federally registered venues before the preemption question is resolved.

Where do Kalshi and Polymarket US fit?

Kalshi is a CFTC-designated contract market, with the CFTC’s designated-contract-market list showing a designation date of November 3, 2020. Its state litigation has become one of the main tests of whether state gambling regulators can reach event contracts listed on federally regulated venues.

Polymarket’s U.S. regulatory position has also changed. The CFTC’s designated-contract-market records list “QCX LLC d/b/a Polymarket US” as designated on July 9, 2025, and state that QCX LLC is operating under the assumed name Polymarket US. That makes the federal-state fight broader than Kalshi alone.

The distinction matters for readers tracking the sector. Polymarket’s historical offshore model and U.S. restrictions are not the full current regulatory picture. Its U.S. entity now appears in the CFTC’s DCM records, while state officials continue to argue that certain event contracts should remain subject to gambling law.

What does the public-interest rule decide?

The June proposal is about the CFTC’s public-interest process, not a single company’s market design. The Federal Register notice says the Commission would apply public-interest factors to event contracts involving enumerated activities and would revise the procedure under 17 CFR part 40.

The proposed factors include price discovery and information-aggregation utility, potential threats to market integrity, and compliance or self-regulatory challenges. For gaming, the notice separates games of random chance from certain sports-related contracts and discusses when sports contracts may or may not be contrary to the public interest.

That structure gives the CFTC an administrative record for later court review. The overlapping questions are whether event contracts qualify as federally regulated derivatives, whether the Commodity Exchange Act preempts state gambling enforcement against CFTC registrants, and whether specific contract categories fall within the public-interest bar.

What is Congress doing?

Congress is also testing whether the sector needs a statutory reset. S. 4060, the Prediction Markets Security and Integrity Act of 2026, was introduced by Sen. Richard Blumenthal on March 11, 2026, with Sen. Andy Kim as a cosponsor, according to GovInfo’s bill record. The bill was referred to the Senate Judiciary Committee.

GovInfo describes S. 4060 as a bill to provide national safeguards for online prediction markets, prevent abuse and fraud, prevent underage use, protect consumers and return regulatory authority over online prediction markets to states. That places the bill on the state-authority side of the jurisdictional fight.

The bill has not displaced the CFTC’s rulemaking. Nor has it resolved the litigation over Minnesota, Arizona, Connecticut, Illinois or other states. It does show that Congress is watching the same boundary question now before the CFTC and the courts: whether prediction markets should be treated primarily as federally regulated derivatives, state-regulated gambling, or some narrower hybrid.

What happens next?

The CFTC’s comment period for the June 12 proposal closed on July 27, 2026. The agency’s next formal step is to review the record and decide whether to issue a final rule, revise the proposal or take another regulatory path.

The court calendar is separate. Minnesota’s preliminary injunction keeps enforcement of its felony statute blocked against CFTC-registered DCMs while the merits case proceeds. Arizona’s consolidated case has already produced temporary relief against state enforcement. The CFTC’s April 2 actions against Connecticut and Illinois, and later state disputes, will continue testing the agency’s preemption theory in different courts.

For Kalshi, Polymarket US and other registered venues, the immediate question is whether DCM status is enough to keep state gambling enforcement away from event contracts that resemble wagers to state officials. The next milestone is the CFTC’s post-comment rulemaking decision, now sitting alongside active federal cases over the same jurisdictional line.