- TD Cowen reports that US states currently hold a legal advantage over the CFTC in regulating sports-based prediction markets due to historical precedents in gambling oversight.
- Recent court rulings in Nevada and Massachusetts have blocked platforms like Crypto.com and Kalshi, treating their event contracts as unlicensed gambling rather than federally regulated derivatives.
- While the CFTC is fighting for exclusive jurisdiction, analysts expect the legal battle could last until 2028 and may require a Supreme Court decision to resolve the conflict.
TD Cowen said US states still have the advantage in court fights over sports-based prediction markets, even after the Commodity Futures Trading Commission stepped in to argue for federal control.
The firm pointed to Nevada’s case against Crypto.com as the key test, when the state regulators moved last year to block Crypto.com’s sports event contracts, calling them unlicensed gambling.
Crypto.com then sued, arguing the contracts are federally regulated derivatives under the CFTC and that Nevada was overreaching. A federal district judge sided with Nevada, and the dispute is now at the Ninth Circuit.
We continue to give a slight edge to the states in this legal fight primarily because the states have historically been the regulators of sports gambling. As we have seen with the case involving the President’s effort to fire Fed Gov. Lisa Cook, this Supreme Court appears to give weight to historical precedents. In the case of the Fed, it was the establishment of the First and Second Banks of the United States.
Jaret Seiberg, managing director at TD Cowen.Very similarly, Polymarket sued Massachusetts Attorney General Andrea Joy Campbell and state gaming regulators in federal court, arguing the issues involve national markets and unsettled law that should be resolved by courts rather than state enforcement.
In January, a Massachusetts state court issued a preliminary injunction blocking Kalshi from offering sports-related contracts unless it obtains a sports wagering licence.
Read more: Institutions, Not Individuals, to Drive Crypto’s Mainstream Breakthrough
States vs. The CFTC
On Tuesday, the CFTC filed an amicus brief backing federal oversight. The agency argued states cannot sidestep the CFTC’s “exclusive jurisdiction” over products traded on CFTC-regulated designated contract markets by relabeling them as illegal gambling.
The brief said the lower-court ruling conflicts with the Commodity Exchange Act and would revive the fragmented, state-by-state regulation Congress intended to replace.
TD Cowen’s Jaret Seiberg said the CFTC’s filing was expected after Chair nominee Brian Selig signaled openness to sports-related event contracts at a recent crypto symposium, despite earlier describing the legal status of such products as an issue likely to be decided by courts. Seiberg said the Crypto.com appeal could ultimately reach the Supreme Court.
He also warned the timeline could be long. Seiberg said the Ninth Circuit process could extend into 2027 if the case draws an en banc request, with Supreme Court arguments potentially not occurring until late 2027 and a decision arriving in early 2028.
Seiberg said politics complicate the outlook, citing Republican tensions between opposition to sports gambling, support for states’ rights, and concerns that prediction markets could bypass state prohibitions, and that a Republican-controlled Congress wouldn’t act to shield prediction markets.
Related: SVB Says 2026 Marks Crypto’s Shift From Hype to Financial Infrastructure
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