States build enforcement barriers around sports betting contracts

CLARITY Act stalls as states build enforcement wall around sports contracts

Governor Ned Lamont signed the cease-and-desist orders on a Thursday, and by Friday nine platforms — Polymarket, Coinbase, Crypto.com, Robinhood, ProphetX, Novig, Webull, Gemini, and Underdog Predict — had been told to stop offering sports event contracts to Connecticut residents and to let those residents withdraw their money. The directive was not advisory. Failure to comply exposes each platform to civil penalties under the Connecticut Unfair Trade Practices Act and potential criminal liability under state gaming law.

That list is the story. Not because nine platforms received orders in a single week, but because of what the list contains: federally regulated entities. Coinbase holds a BitLicense. Robinhood operates under federal broker-dealer registration. Kalshi, which Connecticut sued separately and sought an injunction against, is a CFTC-designated contract market. Connecticut's position is that none of that matters, because the relevant question is not whether a platform is federally authorized but whether sports event contracts constitute gambling under Connecticut law — and a federal judge sitting in that state has already said they do.

The preemption argument that platforms have been running — that CFTC designation under the Commodity Exchange Act shields event contracts from state gaming law — has not found a receptive audience in Hartford. The August ruling Connecticut cites held that sports event contracts are illegal unlicensed gambling, full stop, with federal commodities law providing no shelter. Platforms that bet their compliance posture on the preemption theory are now operating in a state where that theory has been rejected at the trial court level and the regulator has decided to enforce accordingly.

ESMA's twice-yearly risk report, released in the same period, adds a coordinate on the other side of the Atlantic. The watchdog described prediction markets as "speculative gambling environments" and flagged insider trading risks as reaching "new levels" on platforms with limited identity verification. Malta is exploring a regulatory framework. The FCA is considering whether to reform retail access rules, while maintaining its existing binary options ban. Polymarket has joined a Brussels trade association and its chief legal officer has signaled a willingness to engage with EU policymakers directly.

The enforcement posture in Connecticut and the supervisory posture in Brussels are not identical, but they share a structure: regulators in both jurisdictions have concluded that the existing authorization frameworks do not cover what prediction markets are actually doing, and they are not waiting for federal clarity before acting. Connecticut is doing it through cease-and-desist orders and litigation. ESMA is doing it through risk designation and "continued monitoring" — which, in regulatory practice, is the sentence that precedes a rulemaking.

The legal standard that governs is not novel. Under the Supremacy Clause, federal preemption of state law requires either an express statutory statement, field preemption through comprehensive federal occupation, or conflict preemption where state law makes federal compliance impossible. The CFTC's designation of Kalshi as a contract market does not, on its face, satisfy any of those three prongs with respect to a state's authority to regulate gambling. The platforms asserting preemption are not wrong that the argument exists. They are wrong if they concluded it was settled.