Prediction markets' new dilemma: Follow the CFTC or the courts?

Prediction market operators have spent much of 2026 fighting states over where Americans can trade sports event contracts.

Now they face a new challenge from their federal regulator.

The Commodity Futures Trading Commission (CFTC) has given federally regulated exchanges 30 days to remove domestic geographic restrictions that violate its impartial access requirements or explain why compliance isn't feasible.

That creates an unusual dilemma for companies such as Kalshi, Polymarket, and the platforms providing access to their markets.

Comply with federal expectations and potentially face legal consequences in individual states, or maintain geographic restrictions and risk scrutiny from the CFTC.

As prediction market analyst Dustin Gouker highlighted in his November 6 newsletter, the guidance arrives while operators are already navigating adverse court rulings, cease-and-desist letters, and competing interpretations of federal and state law.

And while the CFTC has made its position on nationwide market access clearer, it hasn't resolved the underlying legal conflict.

Why the CFTC wants prediction markets available nationwide

The CFTC's position is based on a longstanding requirement that designated contract markets (DCMs) provide competitive, open, fair, and impartial access to eligible participants.

In its November 5 interpretive guidance, the Commission said federally regulated derivatives markets should operate nationally rather than impose restrictions based solely on where an otherwise eligible trader lives or happens to be located.

"Geographic access restrictions are inconsistent with those purposes and the Act's impartial access requirements," CFTC Chairman Michael S. Selig said in the agency's accompanying announcement.

The reasoning extends beyond equal treatment.

According to the CFTC, excluding traders from certain states can reduce liquidity, widen bid-ask spreads, and undermine the accuracy of market prices.

There's also a practical concern. Someone who opens a position in one state could travel to another where trading is restricted and find themselves unable to manage that position.

That could create additional financial risks for traders and other market participants.

Sports and election contracts are particularly relevant because local participants may provide significant trading activity and information about events involving their states.

But the most consequential part of the announcement isn't necessarily the reasoning. It's the deadline.

Prediction markets have 30 days to respond

Under the CFTC's accompanying announcement, DCMs must cease domestic geographic restrictions that violate impartial access requirements within 30 days or submit an explanation to the agency's Division of Market Oversight outlining why compliance isn't feasible.

Exchanges must also ensure that intermediaries accessing their markets either avoid imposing prohibited geographic restrictions or explain why compliance is unachievable.

The Commission said it would consider the specific facts and circumstances of individual cases when determining potential action.

That leaves an important question unanswered: What qualifies as an acceptable reason for maintaining a geographic restriction?

Is an adverse court ruling sufficient? What about a cease-and-desist letter from a state regulator? Or the risk of losing a separate state-issued gambling license?

The announcement doesn't establish a clear answer to those questions.

And that uncertainty matters because prediction market operators have already restricted access to certain contracts in response to legal developments across the country.

What if a court has already ordered a prediction market to stop?

The central complication is that federal and state authorities don't necessarily agree on how sports event contracts should be regulated.

Prediction market operators argue that contracts traded on federally regulated exchanges fall under the CFTC's jurisdiction.

State gambling regulators, meanwhile, have argued that certain sports contracts constitute gambling products subject to state law.

Those competing positions have produced legal disputes involving Kalshi and other operators in multiple jurisdictions, including Nevada, Michigan, and Washington.

In some cases, operators have restricted access to particular contracts while those disputes unfold.

The CFTC's latest guidance potentially makes those restrictions more difficult to maintain, but it doesn't automatically overturn existing court orders or settle whether states can regulate sports event contracts.

A separate development in California illustrates the broader conflict.

According to reporting by InGame, a federal judge issued an injunction preventing Kalshi from offering sports contracts on the lands of the Blue Lake Rancheria and Chicken Ranch Rancheria of Me-Wuk Indians.

The order followed an appellate court's reversal of an earlier decision denying the tribes' request for an injunction.

The tribal lands ruling raises distinct legal questions from state-based geographic restrictions. Nevertheless, its timing highlights the increasingly complicated environment facing prediction market operators.

One federal regulator is emphasizing nationwide access, while courts are considering circumstances in which they cannot offer particular contracts in specific jurisdictions.

The CFTC hasn't explained precisely how exchanges should reconcile those competing obligations.

Why FanDuel, Robinhood, and other intermediaries matter

The guidance also has implications beyond companies that directly operate exchanges.

Many customers access prediction markets through intermediaries rather than trading directly with a DCM.

FanDuel and Robinhood, for example, provide access to event contracts through federally regulated market infrastructure. Robinhood also has its own DCM.

Under the CFTC's interpretation, exchanges are responsible for taking reasonable steps to ensure intermediaries don't impose geographic restrictions that undermine impartial access requirements.

That means an exchange cannot necessarily avoid the issue simply because a distribution partner, rather than the exchange itself, is restricting customers by location.

For companies that operate both traditional sports betting products and prediction market offerings, the situation can become particularly complicated.

State-regulated sportsbooks must consider their existing gambling licenses and relationships with regulators, while federally regulated prediction market products operate under a different framework.

Those obligations may pull companies in different directions.

However, the guidance applies specifically to access requirements involving DCMs. It doesn't mean every prediction market business or every type of event contract is automatically subject to identical obligations.

What happens if prediction markets don't comply?

Another unanswered question is what the CFTC will actually do if an exchange maintains geographic restrictions without an explanation the agency considers acceptable.

The interpretation references the Commodity Exchange Act's provisions allowing the CFTC to seek injunctions against certain restraints on trading.

But that doesn't establish whether the agency intends to pursue litigation, administrative enforcement, or another response against noncompliant exchanges.

Gouker also raises another possibility: the guidance may be intended partly to strengthen the CFTC's position in the wider legal battle over prediction markets.

By emphasizing that federally regulated derivatives exchanges are supposed to operate nationally, the Commission could be reinforcing the argument that state-by-state restrictions are incompatible with the federal regulatory framework.

That's a plausible interpretation of the agency's approach, rather than a stated objective established by the guidance.

And whether courts accept that reasoning in disputes involving sports event contracts remains an open question.

What this means for prediction market traders

For customers, the immediate implications are less straightforward than the 30-day deadline might suggest.

The guidance doesn't guarantee that Kalshi, Polymarket, or other platforms will suddenly offer every event contract in every state.

Nor does it establish that sports prediction markets are lawful nationwide.

What it does is increase pressure on federally regulated exchanges to justify geographic restrictions that prevent otherwise eligible participants from accessing their markets.

Over time, that could influence which contracts customers can trade, whether access changes when traveling between states and how platforms manage existing positions.

Broader participation could also improve liquidity and pricing, particularly in sports markets that attract significant regional interest.

But greater access doesn't automatically resolve questions about consumer protections, market integrity, insider trading, or the appropriate boundaries between financial trading and gambling.

Those debates will continue regardless of how exchanges respond to the CFTC.

The next 30 days could reveal more than the guidance itself

The CFTC has made its position clear: federally regulated exchanges generally shouldn't exclude otherwise eligible traders simply because of where they are located within the United States.

What's less clear is how that expectation can coexist with state enforcement actions and court orders restricting particular prediction market products.

The next significant development may not be another regulatory announcement, but how exchanges respond to the Commission's deadline.

Do they remove geographic restrictions, seek exceptions, challenge existing legal constraints, or wait to see how the CFTC enforces its interpretation?

Those decisions could reveal how much practical influence the federal regulator has over the rapidly expanding prediction market industry.

For now, the CFTC has clarified one side of the regulatory argument. The courts, states, and prediction market operators still have plenty to say about the other.