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 most states 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 July 2026, and it is genuinely unstable. Court orders now block sports contracts in four states, a federal judge had to rescue the platforms from Minnesota’s first-in-the-nation ban four days before it took effect, New York’s attorney general sued Kalshi in state court on July 31 seeking to bar it from the state, and Congress has bipartisan bills in both chambers 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 July 31, 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.”
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The shortcut answer
Prediction markets like Kalshi let you trade “yes/no” event contracts on sports outcomes (e.g., “Will the Knicks win by more than 6.5?”) under federal CFTC regulation rather than state gambling licensing. That federal classification is currently working in most states, but court orders block sports contracts in Massachusetts, Nevada, Michigan, and Washington, New York is fighting on two fronts, and the Supreme Court is the likely final arbiter: New Jersey’s petition asking it to take the question is due August 4, 2026.
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. Sports quickly became the engine: SI has reported sports at more than 90% of Kalshi’s activity, and the platform posted a reported $31 billion volume month in June 2026 amid the World Cup. Coinbase, Robinhood, Crypto.com, and Gemini followed with their own event-contract products, and the convergence now runs both ways: DraftKings and the pick’em fantasy operators launched federally regulated prediction-market products of their own over the past year.
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 four states) court orders now in force. The federal government has responded by suing at least nine 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 the 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; our prediction markets vs. sportsbooks comparison runs that whole side-by-side with measured cost data.
| Aspect | State-licensed sportsbook (e.g., FanDuel in NY) | CFTC-regulated event contract (e.g., Kalshi) |
|---|---|---|
| Legal framework | State gaming commission license + state law | CFTC Designated Contract Market + Commodity Exchange Act |
| Bet structure | Spread, moneyline, total at posted American odds | “Yes” or “no” contract priced $0.01-$0.99, settles at $1 or $0 |
| Counterparty | The sportsbook (you bet against the house) | Another trader (peer-to-peer exchange) |
| Available states | 39 states plus DC have legal sports betting (about 31 online) | Most states; court orders block sports contracts in MA, NV, MI, and WA |
| Minimum age | 21 (in most legal sports betting states) | 18 (federal commodities trading age) |
| Tax to states | State sports-betting tax (varies, ~6.75-51%) | None; federal commodities-fee structure only |
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. By spring 2026 the American Gaming Association estimated state gambling regulators had collectively cited more than $600 million in lost sports-betting tax revenue tied to prediction-market activity, and the number has only grown as volume has.
State-by-State Status as of July 2026
The current legal status of prediction-market sports event contracts varies materially by state, and the map has hardened considerably since spring. The table below reflects verified court rulings and enforcement actions as of July 31, 2026; states not listed have no public enforcement action documented, which is still the majority of US states by count. For the living version with per-state dates and sources, our state-by-state tracker re-verifies every contested state on a 30-day schedule.
| Status | States (verified July 31, 2026) |
|---|---|
| Court orders BLOCK sports contracts (platforms geo-blocked) | Massachusetts (January 2026); Nevada; Michigan (order extended July 13, suspension and geofencing ordered by August 12); Washington (newest, July 21, 2026) |
| Federal courts ruled FOR preemption (state enforcement blocked) | New Jersey (Third Circuit, April 6, 2026; the state’s Supreme Court petition is due August 4); Tennessee (February 2026); Minnesota (the first outright state BAN, signed May 18, was enjoined by a federal judge on July 27, four days before its effective date; venues stay live while the case proceeds) |
| Courts ruled AGAINST preemption (state authority upheld, access contested) | Maryland (August 2025; Fourth Circuit appeal pending); Ohio (March 9, 2026; consolidated with Tennessee at the Sixth Circuit, argued July 30, no ruling yet); New York (S.D.N.Y. denied Kalshi’s injunction July 7; Second Circuit denied a TRO July 30; the state AG sued Kalshi in state court July 31 seeking to bar its NY contracts) |
| Active litigation or statutes, no dispositive ruling | CFTC suits against at least nine states including Arizona, Connecticut, Illinois, New York, Wisconsin, and Minnesota; Montana (Kalshi sued after a second cease-and-desist); Utah’s prop-bet ban and Illinois’ license-or-leave statute in force; a bipartisan state-AG coalition (California’s AG joined in July) backing state authority |
If you live in a state not listed above (Florida, Georgia, Texas, California, and most others), your state has no public enforcement action against prediction markets as of July 31, 2026, which means platforms like Kalshi remain accessible to you. If you live in Massachusetts, Nevada, Michigan, or Washington, sports event contracts are geo-blocked under the court orders above. Maryland and Ohio access remains active pending appeals but is structurally vulnerable, and New York access now rides on two live cases at once.
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 other courts have since picked up.
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, and the disagreement is no longer hypothetical: the Western District of Michigan found in June that sports event contracts are likely not swaps at all, and the Southern District of New York declined to shield Kalshi on July 7. The Sixth Circuit heard the consolidated Tennessee and Ohio appeals on July 30 (press accounts described a skeptical panel; no ruling has issued and a decision could be months away), the Fourth Circuit’s Maryland appeal is pending, and Justice Alito has given New Jersey until August 4, 2026 to ask the Supreme Court to take the question.
The States Pushing Back: Four Blocked, More Fighting
What started as three preemption-skeptical rulings has grown into a coordinated state campaign. 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’s appeal is pending in the Fourth Circuit. Massachusetts followed in January 2026 with the first preliminary injunction that actually forced a geo-block, and a 38-state bipartisan attorneys-general coalition backed it; California’s AG joined the coalition’s latest brief in July.
The blocked column then grew fast. Nevada’s order came into force in the spring. Michigan’s court extended its restrictions on July 13 and ordered suspension and geofencing by August 12. Washington entered the newest injunction on July 21. Minnesota went further than any state, enacting the first outright felony ban on prediction markets, and the platforms only avoided it because a federal judge enjoined the law on July 27, four days before its effective date, finding it likely preempted. That case continues.
And New York turned itself into the sharpest two-front fight in the country. The S.D.N.Y. declined to shield Kalshi’s sports contracts on July 7 (that ruling is on appeal, and the Second Circuit denied Kalshi a TRO on July 30). Then on July 31, the state attorney general sued Kalshi in state court, alleging an unlicensed gambling operation, asking a judge to bar its New York contracts, and seeking damages the state estimates around $36 billion. The suit’s allegations are allegations, and Kalshi continues operating in New York while the cases proceed, but no state has swung harder. New York’s earlier enforcement campaign against Coinbase and Gemini was the warm-up.
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 (S.4160), 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.
As of July 31, the Senate bill has not moved: it has sat in the Agriculture Committee since March. The pressure did produce a second front, though. On July 22, 2026, Representatives Steven Horsford (D-Nevada) and Mark Amodei (R-Nevada) introduced a bipartisan House companion, referred to the House Agriculture Committee. Congress-watchers do not expect major gambling legislation to pass before the midterms, and the prediction-market industry has been lobbying both chambers heavily, so the honest read is: two pending bills, real bipartisan sponsorship, no floor momentum yet.
State-level legislation is also moving. New York has two pending 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), Utah’s prop-bet ban and Illinois’ license-or-leave statute are already in force, and Minnesota’s ban shows both how far a state can go and how fast a federal court can stop it. 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 July 31, 2026. First, the circuit split is no longer theoretical: the Third Circuit ruled for preemption, district courts in Michigan and New York have ruled the other way, the Sixth Circuit heard arguments July 30 with a decision to come, and the Fourth Circuit is behind it. New Jersey’s Supreme Court petition is due August 4, and once a circuit split fully crystallizes, review becomes far more likely. The Supreme Court could rule either way.
Second, even if federal preemption ultimately holds, the state enforcement wave keeps testing alternate legal theories that preemption doctrine may not reach: New York’s July 31 suit leans on consumer-protection and underage-access claims alongside the gambling-license argument, and the 38-state AG coalition is coordinating those theories across jurisdictions.
Third, Congress could end the question entirely by enacting the Curtis-Schiff bill or its new House companion; neither has moved yet, but a statute would moot every court case at once. Fourth, the CFTC’s own rulemaking authority 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 active CFTC backing, and the underlying instability is structural. Treat platform access as a present-tense fact, not a permanent feature. Geo-blocks change with each ruling (four states’ worth are in force right now), the platforms themselves may pull markets for risk-management reasons, and the broader legal architecture could shift on a single Supreme Court decision or a single act of Congress.
What This Means for You as a Bettor
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Real consumer-protection differences
Federal CFTC regulation does not include the same consumer-protection guardrails state-licensed sportsbooks must offer: state self-exclusion programs, problem-gambling helpline disclosures at point of sale, mandatory deposit limits, and 21+ age verification. Prediction markets allow 18-year-olds to trade sports contracts. Treat the protective infrastructure gap as a real consideration, not a technicality.
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 table above reflects July 31, 2026; rulings change. Check the platform’s geo-block notice for your state before depositing, and use our maintained state-by-state tracker, which re-verifies every contested state on a 30-day schedule. The app’s own eligibility screen is always the final word.
- 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. Michigan is the live example: suspension and geofencing were ordered by August 12.
- 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 that the tax treatment is unsettled. As of July 2026 the IRS has issued no guidance on prediction-market winnings, and practitioners argue for gambling-income, capital-gains, or Section 1256 treatment, with meaningfully different outcomes. That is a different situation from sportsbook winnings, which follow the settled W-2G regime. Keep records of every trade and read our prediction market tax guide before filing; none of this is tax advice.
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 the Horsford-Amodei House bill announcement is at the congressman’s office. For the rest of our own coverage (how event contracts work, fees, taxes, and the venue comparisons), the prediction markets hub is the front door.
Play Safe: Gambling should be fun, not stressful. Set limits, stick to your budget, and never chase losses. If you or someone you know has a gambling problem, call 1-800-MY-RESET or visit ncpgambling.org. For more resources, see our Responsible Gambling page.
Frequently Asked Questions
Can I really bet on sports in all 50 states using prediction markets?
In most states, yes. As of July 31, 2026, platforms like Kalshi remain accessible under federal CFTC regulation everywhere except the four states where court orders block sports contracts (Massachusetts, Nevada, Michigan, and Washington). Minnesota tried to ban prediction markets outright and a federal judge enjoined the ban four days before it took effect. The legal mechanism rests on the Commodity Exchange Act’s exclusive-jurisdiction provision and is contested in multiple courts, so access can change as new rulings land.
What is the prediction market loophole exactly?
Prediction markets like Kalshi are CFTC-approved Designated Contract Markets that offer ‘event contracts’ on sports outcomes (yes/no contracts settling at $1 or $0). Because the contracts are classified as commodity derivatives under federal law, the platforms argue the CFTC’s exclusive jurisdiction over swap contracts on DCMs preempts state gambling laws. This lets users in non-legal-sports-betting states like Texas and California take real-money positions on sports outcomes without state gambling licensing.
Is the prediction market loophole legal?
The legality is genuinely unsettled, and the split is real now. The Third Circuit ruled FOR federal preemption on April 6, 2026 (binding in NJ/PA/DE), and a federal judge enjoined Minnesota’s ban on the same theory in July. District courts in Maryland, Ohio, Michigan, and New York have ruled the other way, four states hold court orders blocking sports contracts, and the CFTC has sued at least nine states to defend its jurisdiction. The Sixth Circuit heard arguments July 30, and New Jersey’s Supreme Court petition is due August 4, 2026. The legal foundation is real today but structurally unstable.
What’s the difference between Kalshi and a state-licensed sportsbook?
Three main differences: (1) regulator: Kalshi is CFTC-regulated (federal commodities), sportsbooks are state-licensed (state gaming commissions); (2) bet structure: Kalshi uses yes/no event contracts priced $0.01-$0.99 settling at $1, sportsbooks use moneyline/spread/total at posted odds; (3) consumer protections: sportsbooks operate under state-mandated 21+ age verification, deposit limits, self-exclusion programs, and problem-gambling helpline disclosures. Kalshi’s federal framework does not impose these same requirements.
Could Congress shut down prediction-market sports contracts?
Yes, and there are now bills in both chambers. Senators Curtis and Schiff introduced the Prediction Markets Are Gambling Act (S.4160) on March 23, 2026, and Representatives Horsford and Amodei introduced a bipartisan House companion on July 22, 2026. Either would amend the Commodity Exchange Act to reclassify sports and casino event contracts as gambling outside CFTC jurisdiction, ending the loophole overnight. Neither bill has advanced out of committee, and Congress-watchers do not expect passage before the midterms, so the courts remain the live battlefield.
