Prediction markets allow their participants to trade event contracts based on binary outcomes of future events, ranging from the outcome of an NFL playoff game to how many times the Vice President will clap during the State of the Union. The price of these contracts (for example, a 30-cent event contract may pay $1 if the event occurs) reflects the market’s assessment of the probability that a given outcome will occur.
The Commodity Futures Trading Commission (CFTC) argues it has “clear and longstanding exclusive jurisdiction to regulate contracts under the Commodity Exchange Act.” According to the CFTC, federal regulation preempts state legislation governing prediction markets. The CFTC has even ordered Kalshi—one of the leading operators of prediction markets—to not comply with state court orders it claims encroach on the CFTC’s regulatory authority. State lawmakers have not waited for courts to resolve the issue. On June 1, 2026, Illinois became the third state in as many weeks to enact prediction market legislation, following Minnesota’s outright ban on May 18, 2026, and Tennessee’s enactment on May 22, 2026, of a criminal statute making it a felony for a party to use an event contract to manipulate a prediction market.
If courts agree with the CFTC, these state laws may have only a limited effect on prediction markets or be struck down in their entirety. If not, prediction market operators could face a rapidly evolving patchwork of state regulation. Either way, understanding recent state legislation is crucial in assessing the current regulatory environment and anticipating future federal regulations. To date, states have taken a broad range of approaches, from outright prohibition to surtaxes on operator revenue. Below, we survey the emerging landscape across five categories: outright prohibition, taxation-first models, comprehensive regulatory proposals, sports-specific regimes, and targeted integrity restrictions.
Outright Prohibition
States considering outright bans generally view prediction markets as a form of gambling that should be prohibited rather than regulated. Minnesota and Utah are the only states so far to have enacted outright bans. Minnesota Governor Tim Walz signed SF 4760 into law on May 18, 2026, making it a felony to create, operate, or advertise a prediction market platform in the state. The ban is scheduled to take effect August 1, 2026—if allowed by the courts. The CFTC sued immediately in federal district court, arguing the legislation undermines the federal regulatory regime, and is seeking a preliminary injunction to stop the law from going into effect.
Utah followed a different path to a similar result. In March, Governor Spencer Cox signed HB 243 after the bill passed unanimously in the State Senate. The new law expands the state’s definition of gambling to include “proposition bets”—defined as “a gambling bet on an individual action, statistic, occurrence or non-occurrence”—in an effort to reach prediction markets. Governor Cox publicly pledged to “use every resource within [his] disposal as governor of the sovereign state of Utah, and under the Constitution to beat [the CFTC] in court.” Notably, the CFTC has not filed suit against Utah. Kalshi, however, has filed a lawsuit in federal court arguing that prediction markets are governed by the Commodity Exchange Act and subject to the exclusive jurisdiction of the CFTC.
Other states have considered similar measures. Hawaii’s HB 2198 would have expanded the definition of gambling, which is prohibited in the state, to include prediction market trading. The bill passed the House unanimously on March 10, but it died in the Senate.
Prioritizing Taxation Over Regulation
Other states have focused less on restricting prediction markets and more on capturing tax revenue generated by them. Kentucky has imposed a 14.25% excise tax on prediction market operators’ transaction fees, regardless of the market type, and bars racetracks from contracting with prediction market platforms. North Carolina’s 2026 budget makes the state the first to affirmatively authorize CFTC-registered prediction market platforms to operate lawfully without a state license or registration, imposing a 6% tax on operators’ net trading fee revenue from North Carolina residents effective 2027. That rate is a fraction of the 23% paid by licensed sportsbooks, reflecting the state’s view that it can collect revenue from CFTC-regulated exchanges without asserting regulatory authority over them.
New Jersey illustrates the tension between taxation and regulation. Legislators introduced S-4447/A-5336 in June 2026 as a comprehensive regulatory framework for prediction markets, then fast-tracked a substantially narrowed substitute through committee. The revised versions, approved by both budget committees on June 28, now impose only a 9% surtax on the gross income of prediction market operators. The substitute stripped all regulatory provisions from the original bill, which had included licensing requirements, responsible gaming mandates, and bans on political, death, and disaster markets. Both versions have cleared committee and await votes by the full legislature.
Proposing Prediction Market Regulation
New York and Pennsylvania have proposed licensing regimes for prediction market platforms, with annual fees ranging from $100,000 to $1 million. The two proposals differ on oversight: New York would place authority under the Department of Financial Services, while Pennsylvania would vest it in the Gaming Control Board.
New York legislators have also proposed the ORACLE Act, the most aggressive state-level proposal short of a ban. The ORACLE Act would impose substantial compliance requirements and stringent consumer protection, advertising, and anti-manipulation standards. It would also prohibit certain markets, including contracts tied to catastrophic events, politics, death, securities, and athletic events. Legislators may have less motivation to advance the ORACLE Act after recent developments. In KalshiEX LLC v. Williams, a federal judge denied Kalshi’s motion for a preliminary injunction that would have blocked the New York State Gaming Commission from enforcing state gambling laws against Kalshi’s sports-related event contracts. If the state can regulate sports-related event contracts without new legislation, the appetite for a sweeping statute covering a fraction of the market’s trading volume may diminish.
Illinois takes a different approach: rather than regulating all event contracts, it targets only sports-related contracts. The Illinois legislature has amended the state’s Sports Wagering Act to add “exchange wagers” to the list of legal sports wagers, requiring prediction markets to obtain a sports wagering license. In addition to existing sports wagering taxes, the state imposes a tax on sports-related event contracts at 1.75% per wager up to five million exchange wagers per fiscal year and 3.5% thereafter.
Ohio’s proposed bill is similar to Illinois in that it expands the definition of “sports gaming” to include sporting event contracts and gives the Ohio Casino Control Commission authority over them. Under this model, prediction market operators would be treated like sports gaming operators for sports contracts but could remain in a legal gray area for other event contracts.
Targeting Integrity Restrictions
Some states have avoided broad licensing or bans and instead targeted market integrity concerns. Tennessee enacted SB 1992 / HB 2079, which makes it a Class E felony for a person who is party to an event contract to manipulate a prediction market. Penalties range from one to six years’ imprisonment and fines of up to $3,000.
California’s proposed AB 1840 would apply a securities-style “material nonpublic information” standard to public officials and public employees who trade in prediction markets. A violation would be a misdemeanor under the Political Reform Act.
Ohio’s proposed H 887 would go further by barring public officials and public employees from maintaining prediction market accounts or helping others trade event contracts. Senior government officials would face even stricter limits.
Conclusion – Practical Takeaways
Until courts definitively resolve the preemption question, prediction market operators face regulatory uncertainty on two fronts: federal oversight by the CFTC and an increasingly diverse set of state laws. The pace of state legislation has accelerated markedly—three states enacted prediction market laws in the span of two weeks—and the range of regulatory approaches, from outright prohibition to targeted integrity restrictions to tax-only regimes, means that compliance strategies will need to account for widely varying requirements across jurisdictions. Companies that fail to monitor developments at both the federal and state level could face significant compliance and enforcement risks. We will continue to monitor these legislative and regulatory developments and report on their implications.
Andrew Nordberg contributed to this article.