Why US State Gaming Regulators Keep Suing Prediction Markets

US state gaming regulators have attacked prediction markets on a simple theory: if a product lets residents bet on the outcome of an event, it is gambling, and gambling requires a state licence. The companies respond that their contracts are federally regulated derivatives, and that the Commodity Exchange Act gives the CFTC exclusive jurisdiction.

Both arguments are plausible. That is why the cases are producing contradictory rulings and why the issue is likely to reach the Supreme Court.

The state cases

Nevada moved first against Polymarket in January 2026, filing a civil complaint that argued the platform was offering event contracts to Nevada residents without a gaming licence. In June 2026 a state judge granted a preliminary injunction blocking Polymarket from operating in the state, according to the Las Vegas Review-Journal.

Massachusetts secured a preliminary injunction against Kalshi in January 2026 over sports wagers. Minnesota went further, enacting a law in May 2026 that banned prediction markets outright as of August 1. The US Department of Justice sued Minnesota, and a federal judge later ruled that the CFTC has exclusive jurisdiction.

Wisconsin's attorney general sued Kalshi, Coinbase, Polymarket and others in April 2026. New York's attorney general filed a lawsuit against Kalshi in July 2026 seeking penalties and restitution that reports described as tens of billions of dollars. Arizona brought criminal charges against Kalshi, which were dismissed after a federal judge found preemption. Ohio and Washington issued rulings or injunctions against Kalshi.

The federal preemption article explains why the same facts produce different results.

Why states care

There are three interests at stake.

The first is revenue. Sports betting is a licensed, taxed industry in most states. If a prediction market can offer the same product without a licence, it competes with incumbent casinos and sportsbooks while avoiding the fees and taxes they pay.

The second is consumer protection. State gambling regulators require age checks, responsible-gambling tools, advertising rules and dispute procedures. Prediction markets argue that their federal oversight provides equivalent protections. States are not convinced.

The third is control. Gambling law is traditionally a state domain. Federal preemption would transfer power to Washington and reduce the ability of states to set their own rules.

The age loophole

One of the most contentious issues is age. Most US casinos and sportsbooks require users to be 21. Prediction markets regulated as derivatives can allow users as young as 18. Critics call that a loophole that gives prediction markets access to a younger, more impulsive customer base.

Polymarket's terms require users to be 18. Kalshi has also marketed to college students. The beginner profitability guide explains why young, inexperienced users are especially vulnerable.

What the rulings actually do

An injunction is not a final judgment. It stops a company from offering certain products in a state while the case proceeds. The company can appeal, settle or change its product.

The practical effect is a patchwork. A market may be available in one state and blocked in the next. A user who moves or travels can lose access. A VPN can hide a location, but using one may breach the platform's terms and does not change the state's view of the product.

The US access guide explains the difference between federal and state restrictions.

The tribal gaming dimension

Native American tribes have also sued prediction markets, arguing that sports event contracts are Class III gaming under the Indian Gaming Regulatory Act and therefore require tribal-state compacts. The cases add another layer of legal risk and another set of plaintiffs with strong incentives to litigate.

The incumbent lobby

State lawsuits are not only about legal theory. They are also about money. Casinos, sportsbooks and tribal gaming operators have an interest in stopping prediction markets from offering competing products without a licence.

That does not make the states' arguments wrong. It does explain why the cases are well funded and why they are being brought in multiple jurisdictions at once. The lobbying article explains how prediction-market companies are fighting back.

The tribal dimension is especially important. Tribes argue that sports event contracts are Class III gaming under federal law, which would require compacts and revenue sharing. If that argument prevails, it could create a third regulatory regime alongside state gambling and federal derivatives law.

The incumbent lobby has another advantage: it is organized. Casinos and tribes have spent decades building relationships with state legislators. Prediction-market companies are new to those relationships, even if they are now spending money in Washington.

That asymmetry helps explain why state cases keep appearing even after federal judges rule in the companies' favour. A loss in court does not necessarily end the political pressure.

What traders should watch

Three signals matter.

First, appellate rulings. A federal appeals court decision on preemption would carry more weight than a single district judge. A Supreme Court case would settle the issue for the whole country.

Second, state legislation. Minnesota's ban shows that a state can act faster than a court. Other states could follow.

Third, platform behaviour. If Polymarket or Kalshi geoblocks a state, that is a practical signal that the legal risk is serious. If they keep operating and fight, they are betting on preemption.

For now, the safest assumption is that access can change with a court order. Keep records, avoid relying on a single venue and read the terms of the product you use. The user legal risk guide covers the personal side.