“It’s not a slam dunk at all.”
A blunt assessment from former Commodity Futures Trading Commission Special Counsel Peter Sanchez Guarda cuts through the noise around an intensifying legal fight that could redraw the line between finance and gambling in the United States.
Guarda, who now runs Peter Sanchez Guarda Consulting and Turnkey Family Office, points to a moment of real uncertainty as federal agencies take the unusual step of suing several states, including Arizona, Connecticut, and Illinois.
He describes an environment shaped by a business-friendly federal posture toward emerging financial models. “The current administration has signaled that it is very pro-business and wants to make it as easy as possible for these new fintech business models such as prediction markets and crypto to operate,” Guarda said. He also noted the unusual makeup of the regulator itself. “The CFTC has only one person on the five-member commission now, so it’s easier for him to enact his agenda if there is no chance of being outvoted.”
Federal regulators CFTC and DOJ supports prediction markets in fight against states
The lawsuits come after states escalated enforcement against platforms like Kalshi, issuing cease-and-desist orders and, in Arizona, pursuing criminal charges tied to sports-event contracts. There appears to be a fundamental disagreement as states argue these products amount to illegal gambling, while federal regulators insist they are legitimate derivatives governed under federal law, and therefore beyond the reach of state gaming regimes.
If anything (besides securities) could be traded on CFTC exchanges with exclusive jurisdiction, then could you argue that you can buy or sell real estate, oil paintings, used cars, home insurance, etc., and the CFTC would have exclusive jurisdiction? If those aren’t allowed because they aren’t a commodity, then sports betting isn’t either if the courts determine they are not commodities, under the definition in the CEA.
Peter Sanchez Guarda, former CFTC Special Counsel
Rather than leaving companies to fight those battles alone, the federal government has stepped in directly. “In the past when the CFTC has asserted its jurisdiction in squabbles with other regulators like the Securities and Exchange Commission, it has not done so directly,” Guarda said. “This strategy of suing directly is unprecedented.”
The shift is thought to be tactical. “By suing directly the CFTC has moved the battleground from state court to federal court,” he explained, adding that it could strengthen the position of prediction market operators facing criminal exposure. They may argue “that they thought that they were operating legally because they went through the process to obtain a license and were relying on the opinion of the CFTC.”
Courts divided as legal questions deepen
A federal judge recently allowed Arizona’s case against Kalshi to proceed, denying a preliminary injunction and drawing attention to the fact that courts are not uniformly siding with the industry. Across the country, more than a dozen similar disputes are unfolding, with different jurisdictions reaching different conclusions, raising the prospect of a fractured legal landscape.
The question is whether federal law overrides state gambling regimes, but even here, the legal footing is shaky. “It’s not a slam dunk at all,” Guarda said. The Commodity Exchange Act (CEA) gives the CFTC “exclusive jurisdiction” over certain products, but only if they qualify as commodities—a point that remains contested.
“Even from the beginning, there has been disagreement by CFTC commissioners… regarding whether event contracts are commodities,” he noted. That uncertainty raises broader questions about the limits of federal oversight. “If anything… could be traded on CFTC exchanges with exclusive jurisdiction, then could you argue that you can buy or sell real estate, oil paintings, used cars?” he said. “If those aren’t allowed because they aren’t a commodity, then sports betting isn’t either if the courts determine they are not commodities.”
CFTC prediction markets lawsuits shows path toward the Supreme Court
The litigation strategy itself appears designed to force a decisive ruling. “The industry is eager to set up a Supreme Court showdown,” Guarda said, pointing to cases being spread across multiple jurisdictions to increase the odds of conflicting appellate decisions, which are often a trigger for review by the Supreme Court of the United States.
There is also a geographical logic to the cases. “It looks like they were carefully chosen,” he said, stating how Arizona, Connecticut, and Illinois map onto influential federal circuits tied to major financial centres, while also offering procedural advantages for getting cases heard.
The push comes as the CFTC itself faces scrutiny. Lawmakers have questioned staffing cuts at the agency, particularly in Chicago, even as it takes on a growing number of complex cases. At the same time, recent agency guidance appears to show a more pragmatic, permissive approach to sports prediction markets, as Guarda states, suggesting regulators are increasingly focused on shaping, rather than shutting down, the sector.
Even if the Supreme Court of the United States ultimately intervenes, the outcome may be narrower than expected. “If it’s a win for the prediction markets it’s unlikely to preempt state gambling regulations,” he said. Instead, any ruling would likely be “narrowly framed for ‘event contracts’ on CFTC regulated exchanges.”
For now, regulators, states, and industry players remain locked in a high-stakes fight over who controls the future of prediction markets and how far financial markets can stretch into the territory of betting. As Guarda put it: “Perhaps a team making it to the playoffs would be an allowable wager because it could affect hotel occupancy rates… But maybe betting on who makes the first scoring shot in a basketball game would not, because there is no business risk that would be hedged.”
Featured image: Canva
