Trump put out a ‘for sale’ sign for prediction markets. States are pushing back.

State lawsuits and federal battles

New York is the latest in a long line of states to say “enough is enough” to so-called prediction markets. On Thursday, New York Attorney General Letitia James filed suit against Polymarket for running an “illegal gambling operation,” two months after she filed a similar lawsuit against Kalshi. Hours later, Polymarket sued back, claiming that the state may not enforce gambling laws against it.

The next day, in a dispute with Ohio and Tennessee, a federal district court ruled in Kalshi’s favor on the matter of jurisdiction, saying that it was a federal matter, contradicting a ruling by the 9th Circuit earlier this summer that gave Nevada authority over the matter. These are just the latest salvos in a long-running dispute pitting states against the corrupt Trump administration. It’s another example of how the “For Sale” sign in front of the White House is enabling the worst players in American life.

The rise of prediction markets

Prediction markets emerged in the late 2010s, thanks to the Supreme Court rolling back a federal ban on sports gambling and states rushing to legalize it, technological advances that put casinos in our pockets and a loophole in federal commodities law. Prediction markets utilize this loophole, which appears to allow them to claim they operate as speculative financial exchanges, or financial swaps, so as to evade state regulations on games of chance and betting. Kalshi previously advertised itself as the “First Nationwide Legal Sports Betting Platform.”

But if purchasing a “designated contract market” transaction saying the New York Yankees will win a game against the Baltimore Orioles sounds like gambling to you, you are hardly alone. In fact, Kalshi previously advertised itself as the “First Nationwide Legal Sports Betting Platform.” As the New York Times once put it, “Is Sports Betting Illegal in Your State? Not if You Call It a ‘Prediction Market.’”

Regulatory shifts under the administration

The Biden administration took a dim view of all this. The Commodity Futures Trading Commission, which regulates derivatives markets, introduced a rule to ban political, sport and war-related event contracts. The Biden-era CFTC also took several actions against prediction markets — including banning Kalshi from listing “contracts” on which political party would control Congress and opening an investigation into Crypto.com for sports “contracts.”

Biden’s Justice Department investigated Polymarket and its CEO, Shayne Coplan, for allegedly letting U.S. users bet on unlicensed election contracts, despite a court settlement with the U.S government that required the company to cease operations of such contracts. All that changed when Donald Trump returned to the White House. Kalshi brought on Donald Trump Jr. as “strategic adviser” and gave him a stake in the company that is now worth $22 billion.

Aggressive industry expansion

Not to be outdone, Polymarket counts his venture capital firm as a funder and one of its top equity holders — and Trump Jr. sits on Polymarket’s advisory board. Meanwhile, the president nominated Michael Selig — an attorney who previously represented cryptocurrency and prediction market clients — as chair of the CFTC. At the same time, President Trump made no public effort to nominate any other Republican or Democratic commissioners to fill out what is normally a five-member commission. This gave Selig unilateral control over the CFTC.

What happened next should come as no surprise. Historically, while states have held jurisdiction over gambling, the CFTC under Selig has taken a number of unprecedented steps not only to regulate prediction markets but to cut the states out of the equation entirely. This year alone, the CFTC has sued nine states with Democratic governors to stop their efforts to crack down on the industry while ignoring similar pushback from some Republican governors.