Kalshi restricted in Washington as 44 states challenge CFTC oversight of prediction markets

A Washington state court has ordered Kalshi to shut down most of its operations in the state. It is the sharpest enforcement action yet in a widening fight over whether prediction markets answer to federal derivatives rules or state gambling laws.

The order, issued Aug. 13 by a King County Superior Court judge, requires Kalshi to geofence Washington residents out of most event contracts by Sept. 2, according to the Washington State Attorney General’s office. Kalshi has already begun restricting access to sports, election, and entertainment contracts in the state.

The practical effect: Washington residents are now locked out of the bulk of Kalshi’s catalog. The state calls those contracts gambling. The CFTC regulates them as derivatives.

The Washington ruling is one front in a broader conflict. Attorneys general from 44 states told the CFTC in July that the agency lacks authority to regulate sports-related event contracts, CNBC reported. Arizona has filed criminal charges against Kalshi. Minnesota enacted a ban on prediction markets, prompting the Trump administration to sue the state. New York is among states in separate legal fights with the federal regulator, ESPN reported.

Each dispute turns on the same question: whether event contracts traded on a CFTC-designated exchange fall under the Commodity Exchange Act or state gambling statutes. Kalshi is regulated as a Designated Contract Market, a financial exchange the CFTC authorizes to list derivatives. States argue that contracts on sports outcomes and elections amount to betting.

The CFTC is pressing its own framework. On June 10, the agency released a 267-page proposed rule that would amend Rule 40.11 to codify its contract-specific approach to determining whether event contracts are contrary to the public interest. A 45-day public comment period followed.

Under that framework, the CFTC would evaluate each type of contract individually rather than treating all prediction markets as a single category.

Contracts on the occurrence or severity of injuries, refereeing decisions, physical altercations during games, youth sporting events, and discrete in-game props involving specific participants would likely be barred. So would contracts involving war, assassinations, or acts of terrorism.

But the proposal leaves room for most sports-related trades on game outcomes or a team’s general performance. The CFTC described sports teams as “economic enterprises” and stadiums as “regional economic anchors” in the rule. “Just as the corn futures market is about more than just corn, a prediction market about one sporting event is about more than just that sporting event,” the proposed rule states.

That framing drew pushback. Bill Miller, president of the American Gaming Association, called it “a remarkable attempt to redefine what constitutes sports betting” in a June 10 statement.

CFTC Chairman Michael Selig, the agency’s sole commissioner, defended the approach. The proposal would establish “a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward,” he said.

Selig was appointed by President Donald Trump in December. The CFTC currently operates with one commissioner.

The market at the center of the dispute is growing fast. Combined monthly trading volume on Kalshi and Polymarket more than quadrupled from less than $5 billion in September 2025 to $24 billion in April 2026, according to Pew Research Center. Sports-related trades have made up 80% of Kalshi’s total volume since July 2024.

The American Gaming Association says prediction markets’ expansion into sports has cost state-licensed sportsbooks more than $1 billion in tax revenue.

The CFTC’s Division of Enforcement has also moved on market integrity. On Feb. 25, the agency issued an advisory following two cases involving misuse of nonpublic information on KalshiEX. In one, a political candidate traded on his own candidacy; Kalshi imposed a $2,246.36 penalty, including $246.36 in disgorgement, and a five-year suspension. In another, a YouTube channel editor traded on material nonpublic information; Kalshi imposed a $20,397.58 penalty, including $5,397.58 in disgorgement, and a two-year suspension.

Whether the CFTC’s proposed rule would preempt state gambling laws remains unresolved. That question sits at the center of the Washington order and the 44-state letter.

What is not yet known is whether Kalshi will contest the Washington order in court. The company has not publicly confirmed an appeal.