For more than a year, tribal governments and state regulators have warned that so-called “prediction market” companies are attempting to use federal commodities law to create something Congress never authorized: a nationwide betting channel beyond the reach of state and tribal gaming laws.
Now the courts are beginning to draw the line.
On July 20, a Washington court granted Attorney General Nick Brown’s request for a preliminary injunction against Kalshi, finding that Washington is likely to succeed on its claims that the company violated state gambling and consumer protection laws.
Then, on August 6, a federal court in Michigan rejected Coinbase’s attempt to block Michigan from enforcing its sports betting laws against sports event contracts offered through federally regulated markets. The court concluded that Coinbase had not shown that the contracts qualify as “swaps” under the Commodity Exchange Act. But it went further: Even assuming federal commodities jurisdiction, Coinbase had not shown that Michigan’s gambling laws were field- or conflict-preempted.
That is the heart of this national fight.
Federal jurisdiction is not federal permission.
The Commodity Futures Trading Commission (CFTC) has an important responsibility to regulate legitimate derivatives markets. Farmers, businesses, and investors use those markets to manage genuine financial and commercial risks.
Retail sports event contracts present a fundamentally different question.
And recent controversy over prediction markets tied to wildfires shows why Congress needs to confront the larger question now. Senators from fire-prone states are pressing the CFTC over contracts that allow people to put money on wildfire outcomes, including how long fires may burn or how far they may spread.
The concern is bigger than whether any one contract should be allowed. It exposes the absence of a meaningful limiting principle.
If virtually any real-world occurrence with an economic consequence can be transformed into an event contract and then claimed to be federally protected, where does the line stop?
There is a meaningful legal and practical distinction between hedging the future price of wheat and putting money on whether a football team covers the spread — or how a wildfire unfolds.
Calling all those transactions “event contracts” does not answer the legal question. And placing them on a federally regulated exchange does not, by itself, erase otherwise applicable laws and public protections in the sovereign jurisdiction where the customer is sitting. For tribal and state governments, the injury is not simply economic.
It is jurisdictional.
Congress established a specific framework for Indian gaming through the Indian Gaming Regulatory Act. Tribal nations exercise governmental authority over gaming, and Class III gaming operates through tribal state compacts negotiated between sovereign governments.
Washington’s sports-wagering system reflects that framework. In 2020, our legislature made a deliberate policy decision to authorize sports wagering within tribal casinos. Tribes then negotiated compact amendments with the state establishing how that gaming would be conducted and regulated.
Nothing in the Commodity Exchange Act says that those laws and federally approved sovereign agreements disappear because a private company lists a product through a different federal regulatory system.
Tribes from across the nation made that point directly in the Michigan litigation, warning that Coinbase’s theory would undermine tribal sovereignty over gaming.
Washington has also exposed one of the weakest arguments for federal preemption.
Geofencing proves that state-specific compliance is technologically possible. It may also address whether particular transactions occur on Indian lands. What it does not answer is the larger statutory question: whether Congress intended federal commodities law to create a parallel, federally immunized sports-wagering system outside the state and tribal gaming frameworks Congress left in place. And the Michigan court rejected the argument that compliance becomes legally impossible merely because it may be difficult or expensive.
The problem is not a technological impossibility. The question is congressional authorization.
Commercial convenience is not preemption.
And this is no longer tribes raising the alarm alone.
A coalition of 44 states has challenged the CFTC’s approach. On August 4, the Senate Committee on Indian Affairs convened a bipartisan roundtable examining prediction markets’ implications for tribal sovereignty, gaming regulation, and public health.
Tribal leaders, tribal gaming regulators, Ohio’s Solicitor General, and a public health expert gave senators a compelling record. Members of both parties raised concerns about underage gambling, consumer protection, sports integrity, the Indian Gaming Regulatory Act, and the CFTC’s expanding assertion of authority.
The discussion also sharpened an essential distinction.
This fight is not about eliminating prediction markets or legitimate financial innovation.
Real derivatives markets serve genuine financial purposes: hedging risk, facilitating price discovery, and helping businesses manage commercial exposure.
Retail event contracts used primarily to wager on sports and other real-world outcomes present a fundamentally different question.
Congress should draw that line clearly. It should make clear that federal registration, listing, or self-certification does not itself immunize sports event contracts functioning as substitutes for sports wagering from otherwise applicable tribal and state gaming laws. It should expressly preserve the Indian Gaming Regulatory Act, tribal-state compacts and tribal regulatory authority, and make clear that Commodity Exchange Act jurisdiction is not itself substantive authorization to displace those laws.
That clarity is increasingly urgent because courts are reaching different conclusions around the country.
Tribal governments and states should not have to litigate their sovereign authority one jurisdiction at a time while these markets continue to expand.
And the stakes extend well beyond prediction markets.
If federal registration and listing status can be transformed into immunity from otherwise applicable laws governing the underlying activity, that principle would alter the relationship between federal regulators and sovereign governments far beyond sports betting.
Congress should decide questions of that magnitude — not a federal agency through regulatory interpretation.
If Congress wants to create a new national system that allows sports wagering and other event-based gambling through commodities exchanges, lawmakers can debate the proposal openly and vote on it.
Until then, a commodities regulator should not be permitted to create one on its own.
The courts are beginning to draw the line.
Congress should make it unmistakable. Again.
