Senators Urge Top Regulator to Stay Out of Prediction Market Lawsuits

A group of 23 Democratic United States senators sent a letter Friday to the top federal regulator that oversees prediction markets, urging the agency to avoid weighing in on ongoing lawsuits over the legality of offers on the platforms tied to “sports, war and other prohibited events.”

Prediction markets, which sell contracts linked to the outcome of real-world developments, have exploded in popularity over the past year, attracting an increasingly mainstream fanbase eager to bet on everything from geopolitical conflicts to fashion choices after the Super Bowl. As they have expanded, the platforms have become a magnet for ethical and legal controversies. On Thursday, for example, Israeli authorities announced that two people had been arrested on suspicion of using classified military information to place bets on Polymarket, one of the biggest players in the industry.

The senators' letter reflects a growing divide over how Polymarket and competitors like Kalshi should be treated. The US government currently considers prediction markets to be derivative markets, which means they fall under the jurisdiction of the Commodity Futures Trading Commission. But state authorities, who have emerged as some of the industry's staunchest critics, argue that the platforms should be subject to the same local regulations as gambling products.

There are at least 19 pending federal lawsuits challenging Kalshi's legality, according to an analysis by National Public Radio. In one case in Massachusetts, a judge banned the company from offering sports contracts after the state sued it for operating without a gambling license. Polymarket then gave a counter lawsuit against Massachusetts arguing that state regulators have no authority over their business.

In his first public comments on prediction markets since he took over in December, CFTC Chairman Michael Selig suggested that the agency can wade into the battles, noting that it has the “expertise and responsibility to defend its exclusive jurisdiction.”

Now, a cadre of senators led by Adam Schiff of California are urging the CFTC to stay out of state affairs. Their letter also asks the agency to block prediction markets from offering gaming contracts, as well as contracts that involve “war, terrorism, murder or other listed activities.” The signatories include Cory Booker, Amy Klobuchar, and Ron Wyden. The CFTC did not respond to requests for comment.

During the Biden administration, the CFTC attempted to place guardrails on some aspects of prediction markets. In 2024, for example, the independent agency proposed to ban the sale of some types of contracts, including those involving sports and politics.

But under the Trump administration, the CFTC has taken a radically different approach. After Selig took over in December, the CFTC soon withdrawn the ban proposal and established a new advisory board that includes the chief executives of all the largest prediction market companies. And when former New Jersey Gov. Chris Christie suggested on social media this week that prediction markets violate the law, Selig issued a brief reaction: “Not even strong.”

Speaking of Bloomberg's Odd Lots podcast this week, Selig elaborated on his vision for regulating the industry, rejecting the idea that prediction markets should be seen as equivalent to sports gambling. “These are not wagers — you're not betting against the house,” he said. “We have important overlay from a regulatory point of view on these markets. And so we are not gatekeeping certain categories of markets, elections, or sports by having different standards.”

In their letter, the senators urged Selig to change course. “These products evade state and tribal consumer protections, generate no public revenue, and undermine sovereign regulatory regimes,” the senators wrote.

Meanwhile, advocates for the prediction market industry say the CFTC is already on the right track. “We think the president is exactly right in asserting the exclusive jurisdiction of the agency over the state,” says former US representative Sean Patrick Maloney, who now leads the lobbying group the Coalition for Prediction Markets. “No state gaming commission will ever have the competence to oversee derivatives markets in general.”

As the regulatory battle over prediction markets continues to evolve, more companies are racing to get in on the action. A number of online sports betting companies including DraftKings have recently unveiled their own offerings. Truth Social, the social media company majority owned by President Donald Trump and his family, is too prep his own product, Truth Predict. Expected offers include opportunities for “events in all major sports leagues.”