Late May 2026 brought a wave of prediction-market lawsuits and split appeals-court rulings. Here is the state of play and what it means for your account.
The legal status of prediction markets escalated sharply at the end of May 2026. Two events in two days set the tone. On May 28, the CFTC sued Rhode Island over the state's actions against prediction markets. On May 29, Kalshi filed a federal lawsuit against Minnesota to block a new law that makes it a felony to operate or advertise prediction markets in the state, a law Governor Tim Walz signed on May 18.
These are not isolated skirmishes. By the platforms' own count, 18 states are now engaged in litigation over event contracts. Back on April 2, the CFTC itself sued Arizona, Connecticut, and Illinois, seeking injunctions to stop state enforcement against Kalshi and Polymarket. The federal regulator and the platforms are increasingly on the same side, arguing that the CFTC holds exclusive jurisdiction over event contracts and that states cannot treat them as gambling.
Every one of these cases circles the same question: are sports-related event contracts federally regulated swaps under CFTC exclusivity, or are they state-regulated gambling subject to traditional police powers? The answer matters enormously, because sports contracts account for more than 90% of activity on Kalshi.
The courts have not agreed:
A circuit split like this is exactly the kind of disagreement that pushes a question toward the Supreme Court. Until it resolves, the legal answer depends partly on which federal circuit you live in.
The action is not only in the courts. On the policy side, a CFTC proposal to write formal rules for prediction markets is under White House review, with the Office of Management and Budget examining the details. CFTC Chairman Michael Selig has said the agency intends to write rules governing the space. At the same time, congressional Democrats urged the CFTC on April 30 to rein in prediction markets over sports betting and insider-trading concerns. The direction of travel is clear: prediction markets are getting formal federal rules, and the only open questions are how strict and how soon.
For most traders, the practical situation in mid-2026 is this: where federal injunctions hold, the platforms continue to operate, and your account functions normally. The sharp edge is at the state level. Minnesota's felony law is the most aggressive move yet, and it shows that individual states are willing to legislate directly against access. If you trade from a state actively litigating or legislating against event contracts, your access is the thing most exposed to sudden change, not your existing balance.
None of this changes the math of a given trade. A contract's fees, your edge, and your position size work the same regardless of the courtroom calendar. What regulation changes is whether you can place the trade at all from where you sit. For the legal-versus-gambling framing that underlies these cases, read are prediction markets gambling.