A legal battle over prediction markets in the United States has intensified, with disputes involving state authorities, the federal government, and the Trump family’s business interests. Prediction markets allow users to place wagers on a wide range of events, including sports, politics, and other real-world occurrences. The core of the conflict centers on whether these platforms should be regulated primarily by federal agencies or subject to individual state gambling laws.

At the center of the controversy is Kalshi, the largest U.S.-based prediction market, which, alongside competitors such as Polymarket and Crypto.com, operates under licenses from the Commodity Futures Trading Commission (C.F.T.C.), a federal agency that oversees commodities and financial event contracts. Kalshi and its executives argue that prediction markets are sophisticated financial products distinct from traditional gambling, regulated fully at the federal level. The company maintains it charges fees instead of taking opposing bets, comparing its structure to stock exchanges such as Nasdaq or the New York Stock Exchange.

However, the stance taken by many state officials diverges sharply. More than 20 states have initiated litigation or issued cease-and-desist orders, contending that prediction markets function in practice as gambling platforms and circumvent state gambling regulations. Most states restrict sports betting to individuals aged 21 and over, while Kalshi’s platform permits participation starting at age 18. State authorities argue that these platforms evade state tax obligations—estimated to total billions in lost revenue annually—and lack consumer protections required under state law.

Democratic and Republican attorneys general have united in this legal effort, with Democratic-led states notably bringing lawsuits and securing preliminary victories against Kalshi. For instance, Washington’s attorney general won a court order this month requiring Kalshi to halt operations. Utah’s attorney general publicly criticized Kalshi’s marketing tactics following an advertisement aimed at younger viewers. Some states, including Ohio, Nevada, Montana, and Tennessee, led by Republicans, have pursued legal action as well, highlighting a bipartisan concern about predatory gambling practices and regulatory oversight.

In reaction to state actions, the C.F.T.C., under Chairman Michael S. Selig—a Trump administration appointee with a background in technology and cryptocurrency—has aggressively defended federal jurisdiction over prediction markets. The C.F.T.C. has filed lawsuits against nine states and utilized emergency powers, rarely employed since 1980, to order Kalshi to continue operations despite state court rulings demanding the company cease business in certain jurisdictions. These federal moves have drawn criticism from former regulatory officials who question the necessity and scope of such interventions.

The Trump family’s involvement has added a political dimension to the dispute. Donald Trump Jr. has publicly urged state attorneys general to refrain from aggressive regulatory actions against prediction markets, describing them as financially sophisticated products appropriate for federal oversight. The Trump administration has aligned closely with prediction market firms, framing the states’ efforts as overreach influenced by traditional gambling operators seeking to protect their market share.

Meanwhile, gambling industry groups, such as the American Gaming Association, representing established casino and sports betting companies, have pushed back against prediction markets, calling them “backdoor sports betting” that evade established legal frameworks and tax regimes.

Legislative efforts have also played a role. In North Carolina, a budget provision passed in July allows federally licensed prediction markets to operate legally within the state and pays taxes at a lower rate than traditional sports betting enterprises. This measure was influenced by lobbying efforts from Kalshi and engagement by the White House’s Office of Intergovernmental Affairs. State legislators and Kalshi representatives have described the arrangement as fair and a potential model for resolving regulatory conflicts in other states.

Legal outcomes so far have been mixed. Several federal court cases challenging state regulations remain pending, with appellate courts issuing split rulings that could elevate the issue to the Supreme Court in the future. The dispute highlights ongoing tensions between federal authority and state sovereignty in regulating emerging financial and gambling-related technologies, with significant implications for the rapidly growing industry of prediction markets.