The Commodity Futures Trading Commission (CFTC) and the Justice Department sued New Mexico on Friday, escalating the federal government’s campaign to stop states from applying gambling laws to federally regulated prediction markets.
The lawsuit, filed in the U.S. District Court for the District of New Mexico, asks the court to block state officials from enforcing New Mexico gambling laws against CFTC-registered designated contract markets (DCMs). It comes after New Mexico Attorney General Raúl Torrez sued Kalshi in state court last week, alleging that the platform’s sports event contracts amount to unlawful online sports betting.
New Mexico’s lawsuit seeks to halt Kalshi’s operations in the state and prevent the company from offering sports-related event contracts there. The CFTC’s federal complaint says that case was filed June 4 and removed to federal court June 8.
The CFTC is seeking a declaratory judgment that federal law gives it exclusive authority over event contracts, along with a permanent injunction preventing New Mexico from enforcing state laws the agency says are preempted by the Commodity Exchange Act (CEA).
“New Mexico is the latest state seeking to nullify black letter law and decades of judicial precedent by imposing state gaming laws on federally regulated derivatives exchanges subject to the CFTC’s exclusive jurisdiction,” CFTC Chairman Mike Selig said in the announcement. “As I’ve said repeatedly, the CFTC has the expertise and responsibility to protect its exclusive jurisdiction over commodity derivatives, and that’s exactly what we’ll continue to do.”
CFTC says sports contracts are swaps
The federal complaint argues that the sports event contracts targeted by New Mexico are swaps under the CEA and that the exchanges offering them are CFTC-regulated DCMs. The agency says New Mexico’s enforcement action directly interferes with a federal regulatory scheme Congress designed to govern commodity derivatives markets.
The complaint also pushes back against the idea that sports prediction markets are operating in a regulatory vacuum. The CFTC says it has approved multiple DCMs that offer event contracts, including Kalshi, Polymarket, Gemini Titan and Nadex, and monitors more than 3,000 self-certified event contracts. It also points to sports integrity agreements with MLB and the NHL as examples of its oversight in the space.
“The Commission is thus fully engaged with the event contracts that are subject to its jurisdiction, as well as the markets that offer them,” the complaint states.
CFTC argues state laws threaten national markets
The New Mexico complaint leans heavily on the CFTC’s long-running preemption theory. The agency argues Congress created the regulatory system because state-by-state regulation had historically caused conflicts and uncertainty.
The complaint says New Mexico’s enforcement action “inject[s] uncertainty into federal derivatives markets over the scope of the Commission’s jurisdiction” and threatens to force DCMs to guess whether they are governed by CFTC standards, state regulators or both. It argues that would “thwart Congress’s federal framework for commodity derivatives markets” and intrude on the commission’s exclusive jurisdiction.
The complaint asks the court to declare New Mexico law preempted and invalid as applied to transactions listed, offered or executed on CFTC-regulated DCMs. It also asks the court to bar New Mexico officials from investigating or enforcing state laws against those transactions.
For New Mexico, the underlying dispute is framed differently. The state’s Kalshi complaint, as quoted in the federal lawsuit, alleges Kalshi operates as a digital platform for sports betting without seeking a state gaming license. New Mexico also alleges Kalshi allows users 18 and older to bet on sports, even though state law bars anyone under 21 from placing wagers.
New Mexico case tracks wider state fight
New Mexico is the eighth state to face a CFTC preemption action as the agency tries to stop states from applying gambling laws to federally regulated prediction markets. Its earlier cases include:
- Arizona: Arizona pursued enforcement actions and criminal charges against Kalshi and other prediction market operators. The CFTC challenged those actions in federal court, where a judge granted both a temporary restraining order and preliminary injunction blocking enforcement against CFTC-regulated DCMs.
- Connecticut: Connecticut regulators targeted sports event contracts offered by federally regulated exchanges, prompting the CFTC to file a preemption lawsuit.
- Illinois: Illinois sought to apply state gambling laws to prediction market operators. The CFTC brought a federal challenge arguing those actions conflict with the CEA.
- New York: State officials moved against prediction market operators and broker partners offering event contracts. The CFTC went to federal court to block enforcement.
- Wisconsin: Attorney General Josh Kaul has sued Kalshi, Robinhood and Coinbase, arguing their sports event contracts amounted to illegal gambling under state law. The CFTC responded with a federal preemption lawsuit.
- Minnesota: Gov. Tim Walz signed a law that would make offering many prediction markets a felony. The CFTC asked a federal court to block the measure before it takes effect on Aug. 1.
- Rhode Island: Officials demanded prediction markets stop operating and sought civil penalties and disgorgement. The CFTC filed a preemption action in response.
Arizona has produced the strongest result for the CFTC so far, with a federal court granting temporary and preliminary relief. The agency’s other state lawsuits are still working their way through the courts.
Industry stakes keep growing
The lawsuit lands as prediction market operators continue expanding sports markets and as state officials increasingly challenge the legal foundation for those offerings.
Kalshi has often been at the center of that fight as the first CFTC-regulated prediction market exchange to aggressively offer sports event contracts nationwide. Other federally regulated or CFTC approved markets, including Polymarket’s U.S. platform, have also moved deeper into sports.
For now, the New Mexico lawsuit shows the CFTC is continuing to step directly into state disputes rather than leaving individual exchanges to defend federal jurisdiction on their own. If the agency continues winning early relief, its position that sports event contracts belong under federal derivatives law will become harder for states to challenge. If states begin winning, the national market for sports event contracts could become far more fragmented.
