A federal regulator sued Arizona, Connecticut and Illinois on Thursday, accusing the states of overstepping by attempting to "outlaw, regulate and otherwise restrain" prediction markets.
The Commodity Futures Trading Commission (CFTC), the federal agency that oversees prediction markets, filed lawsuits in federal district court in those states, all of which had taken action against prediction market companies.
The lawsuits ask the courts to declare that all state gambling laws are "unconstitutional and invalid" if applied to prediction markets.
Arizona, Connecticut and Illinois have issued cease-and-desist letters to prediction market operators in the past year. Arizona filed criminal charges against executives of leading prediction market Kalshi.
"The Trump Administration is recycling industry arguments that have been rejected in district courts across the country," Connecticut Attorney General William Tong said in a statement to ESPN. "These contracts are plainly unlicensed illegal gambling under time-worn state law, and we will aggressively defend Connecticut's commonsense consumer protection laws."
An Arizona Department of Gaming spokesperson acknowledged the lawsuits and declined to make any further comment.
"The Trump Administration is carrying water for companies driving well-documented and lucrative insider trading schemes," a spokesperson for Illinois Gov. JB Pritzker said in a statement. "These firms are making record profits while exposing Illinoisans to gaming products with no basic consumer protections or oversight. This is a blatant attempt to sidestep the State's jurisdiction and put profits ahead of consumers. Illinois isn't backing down -- we will continue to fight to protect Illinois consumers."
CFTC Chairman Michael Selig said in a release announcing the suits that the commission has "exclusive regulatory authority over these markets" and will defend against "overzealous state regulators."
"This is not the first time states have tried to impose inconsistent and contrary obligations on market participants, but Congress specifically rejected such a fragmented patchwork of state regulations because it resulted in poorer consumer protection and increased risk of fraud and manipulation," Selig said in the release.
Thursday's suits are the latest step in an escalating legal battle between prediction markets and state gaming regulators -- one that experts believe could ultimately land in the U.S. Supreme Court.
While the court cases play out in multiple states, lawmakers have expressed growing interest in regulating prediction markets at the federal level. In March, U.S. senators from California and Utah introduced a bill aiming to prohibit prediction markets from offering trading on contracts that resemble a sports bet or casino-style game.