Feds warn states to back off on attempts to regulate prediction markets

The Trump administration told states on Tuesday to knock off their attempts to regulate prediction markets, where people can bet on everything from political races to the weather, saying Uncle Sam is the only one with that power.

Michael S. Selig, chairman of the Commodity Futures Trading Commission, said the U.S. must be the home for prediction markets or else cede them to foreign host nations that might lack the “integrity” American consumers demand.

He said an “onslaught” of state lawsuits threatens that, so the federal government is asserting its primacy.

“To those who seek to challenge our authority in this space, let me be clear: We will see you in court,” he said in a video posted to social media.

Mr. Selig said the CFTC was filing briefs in the state legal cases asserting the federal government’s right to regulate.

Prediction markets, also known as event contracts, allow people to bet on outcomes of various events. Kalshi and Polymarket are two prominent operators, and sports betting is the classic example of a market contract, but the range of possibilities is much wider, and as of 2024, even includes the ability to bet — legally — on the outcome of political contests.

Backers say the markets give people a chance to hedge risk.

Opponents say they are, at root, gambling, and therefore are subject to state gaming laws.

The legal issue for the courts is whether the federal Commodity Exchange Act preempts state laws.

Courts have delivered mixed rulings on that issue.

In a Wall Street Journal op-ed, Mr. Selig said there are nearly 50 active legal cases.

He said the federal government’s reading of event contracts puts them squarely within the Commodity Exchange Act, and he said that law is designed to spur financial innovation.

Mr. Selig also cast the prediction markets as a needed check on the power of the news media.

“For anyone tracking prediction markets ahead of the 2024 presidential election, the scale of President Trump’s victory was hardly unexpected,” he wrote in the op-ed.

The market’s fans say contracts are a better predictor of political outcomes than even some polling.

Even with the foray into politics and other nontraditional areas, the vast majority of business on Kalshi and half the business on Polymarket are reportedly tied to sports bets.

Utah Gov. Spencer J. Cox said that undercuts Mr. Selig’s stance.

“I don’t remember the CFTC having authority over the ‘derivative market’ of LeBron James rebounds,” he said on social media. “These prediction markets you are breathlessly defending are gambling — pure and simple. They are destroying lives.”

Sen. Elizabeth Warren, Massachusetts Democrat, also panned Mr. Selig’s announcement.

“The CFTC should focus on ensuring our derivatives markets don’t blow up the economy again, not helping corrupt political insiders cash in,” she said.

The Trump administration’s stance is a reversal from the Biden era, when the CFTC moved to block Kalshi from offering large-scale contracts on political outcomes. The Biden administration had argued that allowing bets could distort the political process and lead to corruption of elections.

Federal judges in Washington ruled in favor of Kalshi, saying there was scant evidence of the harms the CFTC predicted.