State attorneys general urge federal regulator to act

Forty-four state attorneys general want the same thing from one federal regulator

In the third week of August, forty-four state attorneys general signed a letter to the CFTC. The ask was not complicated: stop treating Kalshi's sports event contracts as federally regulated futures, and let the states do what states have always done with sports betting. The letter argued that prediction markets had sidestepped state licensing, state taxation, and state consumer protections. Kalshi's response was that federally regulated companies pay state taxes through federal structures, that this is how most American industries operate, and that the Times had gotten the story wrong before the ink was dry.

Both things can be true. Kalshi can be correct about how federal preemption works and still be losing the political argument badly.

What makes the attorney general letter worth reading carefully is not the number — forty-four is striking, but coalition letters are cheap to organize — it is the specific framing. The states are not arguing that Kalshi broke the law. They are arguing that the CFTC's framework, as currently written, does not prohibit sports contracts, and that this represents a regulatory gap rather than a federal authorization. This is almost exactly what Kalshi's own spokeswoman said after the Ninth Circuit ruling: the regulations "as written do not prohibit sports contracts." The company is counting on a rule change to clarify what exists. The states are counting on the same ambiguity to deny that authorization ever existed.

The Ninth Circuit's unanimous decision this week did not resolve that ambiguity. It held only that the Commodity Exchange Act likely does not preempt Nevada's gaming regulations as applied to sports event contracts — a likelihood standard, not a final ruling. Nevada Gaming Control Board Chairman Mike Dreitzer called it a complete vindication. That is the statement of a man who has been in a bureaucratic fight for eighteen months and finally has something to show for it. The Third Circuit reached the opposite conclusion in April, holding that Kalshi's contracts are swaps and futures under the CEA, and that federal oversight is exclusive. The Supreme Court is now the only venue where the contradiction can be resolved.

I have watched regulatory fights run through courts before, and the pattern I keep returning to is this: the side that loses on jurisdiction usually wins on time. Every month the circuit split persists is a month Kalshi operates under uncertainty, a month the attorney general coalition adds pressure to the CFTC, and a month the NFL season runs without the rule change the company needs. The CFTC is reportedly working to clarify its regulations. Whether that clarification arrives before a Supreme Court grant, or after, or whether it survives a legal challenge from the same states that just won in the Ninth Circuit, is the open question the market is actually pricing.

My read is that the market is treating the CFTC rule change as more likely and more durable than it is. Forty-four attorneys general do not sign a letter and walk away. The political cost of abandoning that coalition is higher than the political cost of sustaining it, and a federal agency that issues a rule over the explicit objection of forty-four state law enforcement officers will find that rule litigated before the signature dries. The NFL season will generate volume. It will not generate resolution.