Can You Really Bet on Sports in All 50 States Now? The Prediction Market Loophole Explained

Yes — through CFTC-regulated event contracts on platforms like Kalshi, US users in nearly every state can take real money positions on sports outcomes today, including in Texas, California, and other states where conventional online sportsbooks remain illegal. The legal mechanism rests on a single provision of federal law (the Commodity Exchange Act’s grant of exclusive jurisdiction to the CFTC over swap contracts traded on designated contract markets) and one favorable federal appeals court ruling from April 6, 2026 (the Third Circuit’s New Jersey decision).

It is a real working loophole as of late April 2026 — and it is genuinely unstable, because three states have ruled the other way, the CFTC is suing four states to defend the federal claim, and Congress has a bipartisan bill introduced that would close the loophole entirely by amending the underlying statute.

This guide walks through how the loophole actually works, where the legal fight stands as of April 2026, what your specific state’s status is, and what a recreational bettor in a state without legal sportsbooks should actually understand about using these platforms today. The honest version isn’t “it’s complicated, who knows” — it’s “the mechanism is real but contested, and you should bet accordingly.”

The Short Answer — Almost, But It’s Not Sports Betting. It’s Buying a “Yes” Contract.

If you live in California, Texas, or any of the other states without legal online sportsbooks and you want to put money on the Lakers winning their next game, your options today look different than they did two years ago. You can sign up for Kalshi (and to a lesser extent Polymarket, Coinbase Derivatives, Robinhood, or Crypto.com), deposit dollars by ACH, and buy a “yes” contract on the outcome you want. If you’re right, the contract pays $1. If you’re wrong, the contract pays $0. The price you paid — somewhere between $0.01 and $0.99 — reflects the market’s collective probability estimate for that outcome.

This isn’t a sportsbook taking a bet against you. It’s a regulated derivatives exchange matching your contract with someone else’s contract on the other side of the trade. Kalshi makes its money on transaction fees, not on losing wagers. The legal classification — “event contract” rather than “sports bet” — is what allows the platform to operate under federal CFTC regulation rather than state gambling licensing. Whether that distinction is legally sound is the entire fight described below.

How the Loophole Actually Works

Kalshi obtained CFTC approval as a Designated Contract Market (DCM) in 2020. The DCM designation is a federal license to operate as a derivatives exchange — historically used by commodity-futures markets like CME and ICE for trading on grain, oil, and interest-rate contracts. Kalshi’s product was novel: contracts that settle on real-world events (initially elections, weather, economic data) rather than on commodity prices. That product was approved under the same DCM framework that governs every futures exchange in the United States.

In 2025, Kalshi expanded into sports event contracts, listing markets on NFL games, NBA games, MLB outcomes, college football and basketball, and major soccer tournaments. By 2025, sports event contracts were generating roughly 90% of Kalshi’s monthly trading volume in some months, with total platform volume exceeding $1 billion per month. Coinbase, Robinhood, Crypto.com, and Gemini followed with their own event-contract products, each operating under similar federal regulatory frameworks (Coinbase via its Coinbase Financial Markets, Inc. subsidiary; the others via DCM partnerships or direct registration).

The platforms’ position is that because they hold federal CFTC approval and offer products classified as commodity derivatives under federal law, they can offer those products to US residents in any state — regardless of whether that state’s gambling laws would prohibit a sportsbook from operating there. State gaming commissions have responded with cease-and-desist letters, lawsuits, and (in one state) a successful preliminary injunction. The federal government has responded by suing four states to block their enforcement actions. The fight is ongoing on multiple fronts simultaneously.

The Legal Hinge — CEA Section 2(a)(1)(A) Exclusive Jurisdiction

The entire loophole rests on one provision of the Commodity Exchange Act. Section 2(a)(1)(A) of the CEA grants the CFTC “exclusive jurisdiction” over “accounts, agreements, and transactions involving swaps or contracts of sale of a commodity for future delivery traded or executed on a contract market.” A sports event contract listed on a CFTC-approved DCM, the platforms argue, is a “swap” or future under federal law — and the CEA’s exclusive-jurisdiction language displaces state regulatory authority over those instruments.

The CEA also contains “savings clauses” preserving state authority in certain areas — for example, allowing state common-law tort and fraud claims to proceed even where federal regulation otherwise applies. Whether those savings clauses preserve state gambling enforcement against DCM-traded sports event contracts is the specific legal question every court ruling has had to address. The Third Circuit’s April 2026 New Jersey ruling held that the savings clauses preserve only state court jurisdiction over common-law causes of action — not state regulatory authority over DCM trading. Other courts have read the savings clauses more broadly.

Practically speaking: the legal hinge is whether a sports event contract is a “swap” under federal commodities law (in which case CFTC has exclusive jurisdiction and state law is preempted), or a sports bet under state gambling law (in which case state licensing applies and CFTC approval is irrelevant). Multiple federal and state courts are answering this question differently — which is why your access to these platforms depends partly on which state you live in and partly on which federal court has jurisdiction over the dispute when it comes up in your state.

What Sports Event Contracts Look Like in Practice

Concretely, here’s how the same outcome looks on a CFTC-regulated prediction market versus a state-licensed sportsbook. Take a Knicks game where the Knicks are favored by 6.5 points. On FanDuel (legal in NY), you can place a moneyline bet, a spread bet (Knicks -6.5), or a total. On Kalshi, you trade an event contract: “Will the Knicks win by more than 6.5 points?” with “yes” priced somewhere between $0.01 and $0.99 reflecting the market’s probability estimate. If “yes” is trading at $0.55 and the Knicks cover, your $0.55 contract pays out $1 (a profit of $0.45 on $0.55 risked, or roughly +82 in American odds terms). The math comes out close to the equivalent sportsbook line, with differences mostly in fee structure and market liquidity.

That last row — the tax differential — is the practical heart of the state pushback. State regulators argue that prediction markets capture gambling demand without paying the state sports-betting tax that funds public schools, problem-gambling programs, and the licensing infrastructure for legal sportsbooks. The American Gaming Association estimates state gambling regulators have collectively cited more than $600 million in lost sports-betting tax revenue tied to prediction-market activity.

State-by-State Status as of April 2026

The current legal status of prediction-market sports event contracts varies materially by state. The table below reflects verified court rulings and enforcement actions as of late April 2026 — states not listed have no public enforcement action documented, which is the majority of US states by count:

If you live in a state not listed above (Florida, Georgia, Washington, Texas, California, and most others), your state has no public enforcement action against prediction markets as of April 2026, which means platforms like Kalshi remain accessible to you. If you live in Massachusetts, Kalshi is geo-blocked from sports event contracts pursuant to the January preliminary injunction. Maryland and Ohio access remains active pending appeals, but is structurally vulnerable to state action.

The Federal Preemption Test — Why the Third Circuit Ruling Matters

On April 6, 2026, the U.S. Court of Appeals for the Third Circuit became the first federal appellate court to rule on the federal preemption question for prediction-market sports event contracts. The case arose from New Jersey’s enforcement action against Kalshi; the Third Circuit affirmed a preliminary injunction barring New Jersey from enforcing its gambling laws against Kalshi’s sports contracts.

The 2-1 majority opinion, written by Judge David J. Porter and joined by Chief Judge Michael A. Chagares, held that the CEA’s grant of “exclusive jurisdiction” to the CFTC preempts conflicting state gambling statutes when applied to event contracts traded on CFTC-registered DCMs. Circuit Judge Jane Richards Roth dissented, writing that Kalshi’s offerings are “virtually indistinguishable from the betting products available on online sportsbooks, such as DraftKings and FanDuel” — a counter-framing that may carry weight in other circuits hearing the same question.

Federal preemption analysis works through several distinct doctrines, all of which the Third Circuit found applicable here:

• Field preemption. The CEA so comprehensively occupies the field of regulating swaps traded on DCMs that there is no room left for state regulation. State gambling enforcement against a CFTC-registered DCM intrudes on territory Congress has fully claimed for federal regulation.
• Conflict preemption. Subjecting CFTC-registered DCMs to a patchwork of 50 different state gambling regimes would frustrate Congress’s objective of maintaining a unified national market in commodity derivatives. State enforcement would make federal compliance practically impossible if every state could ban or condition contracts the CFTC has approved.
• Statutory interpretation of “exclusive jurisdiction.” The Third Circuit read CEA Section 2(a)(1)(A)’s plain language — “exclusive jurisdiction” — as Congress’s clear statement that no other regulator (federal or state) shares authority over DCM-traded swaps.
• Limited reach of CEA savings clauses. The CEA preserves state common-law tort and fraud claims (a savings clause), but the Third Circuit held that this savings does not extend to state regulatory enforcement against DCM trading itself. Common-law fraud suits survive; state gambling-licensing requirements do not.

The Third Circuit’s ruling binds federal courts in New Jersey, Pennsylvania, and Delaware. It is highly persuasive but not binding on courts in other circuits. Pending appeals in the Fourth Circuit (Maryland) and Sixth Circuit (Tennessee/Ohio consolidation) will produce additional circuit-level rulings; if they split with the Third Circuit, the Supreme Court is much more likely to take the case.

The States Pushing Back — Massachusetts, Maryland, Ohio

Three state-level rulings have rejected the federal-preemption argument. Maryland came first (August 2025): a federal district court denied Kalshi’s request for a preliminary injunction, holding that Congress did not clearly intend to displace state authority over gambling when it gave the CFTC jurisdiction over commodity derivatives. Kalshi appealed to the Fourth Circuit; that appeal is pending.

Massachusetts followed in January 2026. A Suffolk County Superior Court judge issued a preliminary injunction against Kalshi, ruling that Kalshi’s sports event contracts are subject to Massachusetts gaming laws and that the platform may not allow in-state users to place sports-related event contracts without a Massachusetts gaming license. Kalshi has geo-blocked Massachusetts users from sports contracts pending appeal. Letitia James, alongside 37 other state attorneys general (38 total), filed an amicus brief urging the Massachusetts court to uphold that injunction — a coalition that includes both Republican and Democratic AGs.

Ohio joined the preemption-skeptical column on March 9, 2026, when a federal court denied Kalshi’s motion for a preliminary injunction in Ohio’s parallel proceeding. The Sixth Circuit will hear the consolidated appeals from the Tennessee ruling (which favored Kalshi) and the Ohio ruling (which favored the state) — a built-in circuit-level test of the same federal-preemption question on internally inconsistent district-court records.

What Congress Is Doing

On March 23, 2026, Senators John Curtis (R-Utah) and Adam Schiff (D-California) introduced the Prediction Markets Are Gambling Act, a bipartisan bill that would amend the Commodity Exchange Act to explicitly classify sports and casino-style event contracts as gambling outside the CFTC’s jurisdiction. If enacted, the bill would remove the entire legal foundation of the loophole this article describes — sports event contracts on Kalshi and similar platforms would become state-regulated gambling overnight, and the platforms would have to either obtain state gambling licenses (state-by-state) or stop offering sports markets in any state without a license.

The bill’s bipartisan introduction signals real political momentum, but enactment is uncertain. Federal commodities legislation rarely moves quickly through Congress, and the prediction-market industry has been actively lobbying both chambers (Kalshi and Polymarket disclosed substantial new lobbying expenditures in the first quarter of 2026). The likelihood the bill becomes law in 2026 is genuinely difficult to assess; it neither has clear momentum to pass nor obvious roadblocks to fail.

State-level legislation is also moving. New York’s enforcement campaign against Coinbase and Gemini sits alongside two pending NY bills (Sen. Cooney’s S8889 to license under the Department of Financial Services; Assembly Member Vanel’s ORACLE Act to ban sports event contracts with $1M/day fines). At least a dozen other states have considered similar legislation; none has passed yet. The DOJ’s parallel investigation into prediction-market insider trading adds federal criminal-enforcement risk on top of the regulatory question.

Why “Loophole” Is the Right Word — and Why It Might Not Last

“Loophole” is the right word because what’s happening is exactly what the term describes: a legal mechanism that lets activity proceed in a way that wasn’t the obvious intent of the regulatory scheme. The Commodity Exchange Act was written to govern futures markets in agricultural commodities, energy, and financial instruments — not to provide a federal regulatory home for sports speculation. Kalshi and similar platforms have used the CEA’s exclusive-jurisdiction provision and the DCM designation framework to offer products that look, function, and are bet on like sportsbook wagers, but that legally classify as commodity derivatives outside state gambling licensing. That’s a loophole — a real one, working today.

It might not last for four reasons, all genuinely live as of late April 2026. First, the Fourth Circuit appeal in the Maryland case could split with the Third Circuit and reject the preemption argument; the Sixth Circuit’s consolidation of the Tennessee and Ohio appeals will produce another circuit-level ruling on the same question. A circuit split makes Supreme Court review substantially more likely, and the Supreme Court could rule either way.

Second, even if federal preemption holds at the Supreme Court level, the state AG enforcement wave (NY, CT, AZ, IL, WI) is testing alternate legal theories — including consumer-protection claims, age-verification violations of state-mandated 21+ gambling rules, and unfair business practices claims — that could carve back state authority on grounds the preemption doctrine doesn’t reach.

Third, Congress could end the question entirely by enacting the Curtis-Schiff bill or similar legislation; bipartisan introduction in March 2026 is the strongest legislative signal so far. Fourth, the CFTC’s own rulemaking authority — currently in an extended “withdrawal of proposed regulatory action” posture — could swing the federal regulator toward narrower or broader treatment of sports event contracts, which would reshape the loophole’s edges without requiring any court ruling at all.

The honest assessment for a recreational bettor: the loophole is real today, the legal mechanism is genuinely supported by one federal appeals court ruling and ongoing CFTC backing, and the underlying instability is structural. Treat platform access as a present-tense fact, not a permanent feature. Geo-blocks change weekly based on new court rulings, the platforms themselves may pull markets for risk-management reasons, and the broader legal architecture could collapse on a single Supreme Court decision or a single act of Congress.

What This Means for You as a Bettor

For a recreational bettor in a state without legal sportsbooks who is considering using prediction markets for sports speculation, four practical considerations matter:

• Verify your state’s current status before signing up. The state-by-state table above reflects late April 2026; rulings change. Check Kalshi’s terms of service or the platform’s geo-block notice for your state before depositing.
• Treat platform access as time-bound. If you have a winning open position when a court rules against your state’s access, the platform may freeze your ability to add to it but will typically settle existing contracts at expiry. If you are mid-position when access is cut, document your contracts immediately.
• Recognize the consumer-protection gap. Self-exclusion programs, deposit limits, and problem-gambling resources are not comparable across federal and state regulatory frameworks. Set your own limits before depositing — Kalshi does offer self-imposed limits, but they are not enforced by an outside regulator the way state-licensed sportsbooks’ limits are.
• Understand the tax difference. Federal commodities transactions are taxed differently than state-licensed gambling. If you net positive on the year, expect to receive a 1099-B (or similar federal form), not a W-2G. Consult a tax professional for prediction-market trading; the reporting framework is different from sportsbook winnings and many bettors are not familiar with it.

The full statutory text of the Commodity Exchange Act provision at issue is available at the CFTC’s official press releases archive; Norton Rose Fulbright’s comprehensive law-firm explainer of the preemption fight is at Prediction Markets at a Crossroads; and Fortune’s coverage of the Supreme Court trajectory is at Fortune.

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