CFTC Adds Rhode Island to Legal Fight Over Sports Markets

It’s been a big week for Little Rhody!

The Commodity Futures Trading Commission has filed a lawsuit against Rhode Island Attorney General Peter F. Neronha and other state leaders today. The regulator’s filing comes in response to the state’s lawsuit, filed earlier this week, seeking to force Kalshi and Poymarket out.

CFTC Chairman Michael Selig used familiar rhetoric against Rhode Island in a press release announcing the lawsuit.

“CFTC-registered exchanges have faced an onslaught of lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets. This power grab ignores the law and decades of precedent,” Selig shared.

Rhode Island is the seventh state facing lawsuits from the regulator, joining the following markets:

• Arizona

• Connecticut

• Illinois

• Minnesota

• New York

• Wisconsin

At the core of the CFTC’s argument is the Commodity Exchange Act, which grants the regulator authority over “swaps.” The prediction industry has long argued that its sports markets are a form of “swaps,” which has allowed it to avoid gambling regulations and state-imposed taxes. 

Opponents, including Rhode Island, believe the language in the CEA is being incorrectly interpreted to cover prediction markets. Instead, they argue that sports markets are clearly a form of gambling, which means they should be subject to the corresponding laws and taxes.

While Polymarket has yet to take any legal action, Kalshi filed a lawsuit against Rhode Island just hours after the state’s.

CFTC Faces Tougher Test in Tennessee

Rhode Island is a small market that Democrats have controlled for some time now. That made it an easy target for the CFTC and Selig, who have only filed lawsuits against states led by the party in power. This allows the regulator to fight on behalf of the industry without causing Republican infighting ahead of a crucial midterm election.

Earlier this week, Tennessee announced it was appealing a court ruling allowing Kalshi to offer sports markets in the state. Republican Attorney General Jonathan Skrmetti skewered the industry in his filing, using the same arguments as his peers from the seven states targeted by the CFTC. 

While having Republican leaders loudly criticize prediction markets is a bad look, Tennessee’s lawsuit may not ultimately mean much. All around the US, dozens of lawsuits have been filed challenging the prediction industry’s protection under the CEA. At least one of those cases will reach the Supreme Court before Tennessee’s, setting a precedent that will decide the others.

As a result, filing a lawsuit against Tennessee would likely do more harm than good.