Last week, Rhode Island became the latest state to file a lawsuit against one or more prediction market apps. According to the state, platforms including Kalshi and Polymarket are eating away at state-based sports betting revenue while bypassing laws that have been passed as part of the RILOT (Rhode Island Lottery) regulatory structure.
As expected, the Commodity Futures Trading Commission has responded with a suit of its own, claiming an ongoing “commitment to affirming exclusive jurisdiction over CFTC-regulated prediction markets.” The legal action adds another state to the growing list of jurisdictions being sued by the federal government for their civil complaints against prediction exchanges.
“CFTC-registered exchanges have faced an onslaught of lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets. This power grab ignores the law and decades of precedent,” said CFTC Chairman Michael S. Selig in an official statement. “These products are commodity derivatives and squarely within the CFTC’s regulatory remit. As I’ve said before, the CFTC has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives, and that’s exactly what we’ll do.”
Rhode Island Attorney General Peter Neronha laid out the state’s grievance against Kalshi and Polymarket in a press statement of his own last month. The state’s top prosecutor believes that sports-related predictions that the apps offer are illegal sports bets that use terminology like “events contracts” to circumvent state laws and RILOT regulations.
“There is no substantive difference between sports betting and ‘events contracts’ in this context; Kalshi and Polymarket know that, and we know that,” says the RI attorney general. “The problem here is that Rhode Island State law heavily regulates gambling, for good reason, and we allege that Kalshi and Polymarket are evading our laws. And Rhode Islanders are losing out.”
Although Rhode Island is one of the least populated states in the country, its RILOT regulatory infrastructure taxes sports betting and licenses two online sportsbooks: the state owned Sportsbook Rhode Island and Bally Bet. The attorney general goes on to claim that RI has generated over $2.8 billion in sports betting revenue since the activity was formally legalized in 2019.
The CFTC’s official stance on prediction markets has been equally as consistent as the states it is battling against in District Courts across the nation. The federal agency argues that prediction market contracts – even the ones that are tied to a sports contest – fall under its exclusive remit. The CFTC regulates platforms like Kalshi, and has recently moved to sign data sharing agreements with leagues such as the NHL to protect prediction market integrity.
Legal complaints by states against prediction market exchanges are unfounded, according to the CFTC. They simply represent barriers that – until the CFTC decided to enforce its oversight purview over prediction markets – drove much of the digital asset and derivative exchanges offshore. Now that Rhode Island has officially entered the prediction market legal fray, a total of 18 states have some form of legal action pending against one or more prediction exchanges.
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