The Commodity Futures Trading Commission plans to sue New Mexico to prevent it from blocking sports-event contracts in the state, Front Office Sports has learned. The suit is expected to be filed Friday afternoon in federal court, according to FOS sources.
It comes as a response to New Mexico suing Kalshi in state court on June 4. The federal regulator is asking the court to rule that it has exclusive jurisdiction to regulate sports-event contracts, and also seeks a permanent injunction that would bar New Mexico from enforcing state gambling laws against prediction-market platforms that fall under the CFTC’s purview.
New Mexico is the eighth state to be sued by the CFTC since April 2, when the regulator launched lawsuits against Illinois, Arizona, and Connecticut. Since then, it has also sued New York, Rhode Island, Wisconsin, and Minnesota.
The suit continues a trend U.S. gaming attorney Dan Wallach, a fierce critic of prediction markets, pointed out last month: the CFTC has only sued states with Democratic governors and attorneys general.
The lawsuit comes two days after the CFTC issued a 267-page notice of proposed rulemaking that would update regulations around prediction markets, but which experts say is unlikely to change anyone’s mind with regard to how they feel about the industry. The notice does not mean any new rules have been put in place yet. It was published in the Federal Register Friday, meaning a 45-day period now begins during which the public can offer comments for the CFTC to consider.
The newly proposed rules would restrict bets that most regulated platforms in the U.S. don’t currently offer, like in-game props related to a specific pitch or shot, markets on sports below the collegiate level, and officiating decisions.
Former CFTC lawyer Carl Kennedy tells FOS that supporters of traditional sports betting over prediction markets are unlikely to be satisfied because the agency is looking to largely leave intact the game-outcome, player-performance, and season-long markets that have fueled the industry’s growth.
“I don’t know if anyone in the gaming industry will be happy with this,” Kennedy, who now works at New York–based law firm Katten Muchin, tells FOS.
Still, he applauds the proposal for laying out more detail on how the agency would evaluate which event contracts it might challenge, with factors including manipulation risk, access to material information, and whether a market is structured in a way that makes it susceptible to being influenced by participants. “An exchange will know what to expect if there’s a challenge,” Kennedy says.
The proposal is unlikely to have much impact on the legal battles currently playing out between states and prediction-market operators, according to Melinda Roth, a law professor at Washington and Lee University. She says courts will still have to resolve the central question at the heart of the litigation: whether federal law preempts state gambling laws.
“Just because they proposed new rulemaking doesn’t change the legal argument,” Roth tells FOS.
The underlying debate over whether sports-event contracts should exist at all remains unresolved, and experts expect the U.S. Supreme Court to eventually weigh in.
Sen. Richard Blumenthal (D., Conn.), is a prominent critic of the industry. He has proposed two related pieces of legislation: the Prediction Markets Security and Integrity Act, introduced March 11, would establish safeguards to protect against insider trading and market manipulation, while the Gaming Advertisement to Minors Enforcement Act, introduced last month alongside Sen. Katie Britt (R., Ala.), would prohibit sports betting or prediction-market advertising to minors.
Blumenthal argues that prediction markets are simply another form of sports betting. He says both prediction-market platforms and traditional sports-betting operators should be subject to federal oversight, but that federal regulation should not preclude states from enforcing their own rules.
“These companies may distinguish between the two forms based on the fact that one is a supposed event contract and the gambler is not betting against the house,” he tells FOS, “but the fact is it’s betting.”
