CFTC defends ban on election betting markets in court fight

Arizona's criminal case against Kalshi stays frozen as CFTC defends its turf in New York

At the Predict 2026 conference in New York on Tuesday, CFTC General Counsel Tyler Badgley stood in front of an industry audience and did something unusual for a federal regulator: he categorized his own agency's legal exposure. Four buckets, he said. Designated contract markets suing states. States bringing enforcement actions, including criminal indictments. The CFTC itself seeking injunctions. And then everything else — class actions, tribal suits, the long tail of a jurisdictional war that has no obvious end.

The Arizona bucket deserves the most attention. In March, the state's attorney general filed a twenty-count criminal indictment against Kalshi, charging unlicensed gambling and illegal election wagering. A federal judge issued a temporary restraining order in April, freezing the criminal case until courts or Congress resolve whether sports event contracts are federally regulated derivatives or state-regulated gambling. That order remains in place. Arizona's criminal apparatus is sitting idle, waiting on a constitutional question that no one has answered cleanly.

Rob Schwartz, a former CFTC general counsel now in private practice at Morgan Lewis, called this a legislative mess, and he is not wrong, though the word undersells it. A mess implies disorder. What you actually have is two coherent legal frameworks in direct collision: the Commodity Exchange Act, which gives the CFTC authority over derivatives traded on designated contract markets, and state gambling statutes that predate prediction markets entirely and were never written with them in mind. Federal preemption doctrine says federal law wins where there is a genuine conflict. The fight right now is over whether there is a genuine conflict, or whether sports event contracts are simply gambling products that the CFTC mistakenly certified.

Daniel Wallach, speaking at G2E in Las Vegas last week, put the appellate record plainly: thirty-eight state-favorable rulings out of forty-three. He also noted that the Supreme Court, across a twenty-year window, reverses in roughly seventy percent of the cases it accepts. That number is doing a lot of work in Kalshi's current strategy. The company has asked for a thirty-day extension on its response to New Jersey's cert petition, which Wallach reads as an attempt to ensure the Third Circuit case does not reach the Court alone. Kalshi wants the Ninth Circuit case consolidated or concurrent, because a reversal court that takes a circuit split is a different animal than one that takes a single clean loss.

I think the market is underpricing the probability that Congress moves before the Supreme Court resolves this. The legislative pressure is real, the state coalition is organized, and the CFTC under its current posture is not going to concede ground administratively. That combination historically produces a congressional off-ramp, not because legislators want to do the work, but because the alternative is a Supreme Court ruling that locks one side out entirely. A negotiated federal framework — one that gives states some enforcement role while preserving CFTC primacy on contract certification — is more likely than the binary outcome most participants are pricing.