O’Rielly: States Will Lose on Prediction Markets

The Old Testament Book of Ecclesiastes offers this profound insight, “There is nothing new under the sun.” For old tech policy veterans, the ongoing knife fight over how best to regulate prediction markets—such as Kalshi and Polymarket—should trigger memories of near-identical struggles over states’ ability to call the shots in other contexts. Fortunately, federal policymakers are rejecting past mistakes and ensuring this exciting technology does not become the next chew toy for overzealous state regulators
seeking notoriety or revenues.

It should be acknowledged from the outset that prediction markets are not new. For thousands of years, humans have made predictions, backed by their personal wealth, about future events that ran counter to conventional thinking and the visions of their peers. In the U.S., political markets from the late 1800s through the mid-1900s often picked presidential winners, outperforming political polls. Mix in some messy court cases and legitimate concerns about organized crime, and these practices generally died off domestically for a time. Recent developments, including the rise of modern tech platforms and applications, have expanded consumers’ access to “forecasting markets” and reignited interest in them, with some expecting the total value to reach $1 trillion annually within a few years.

Prediction markets have sparked a familiar state-federal turf war, despite the absence of any major scandal or market failure. Some states want to label the activities as gambling, an area generally policed by state law. That keeps open a lucrative tax stream, shields entrenched industries, and gives states a ready-made excuse to block these platforms outright.

The federal government rightfully sees it differently. The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) argue that prediction markets are event contracts or securities and therefore belong under federal law. President Trump has now joined that fight, backing the CFTC’s court challenges to state interference and signaling support for a single national framework that would let the United States compete in a fast-growing global marketplace.

Substantively, calling prediction markets gambling is beyond a stretch, even when sports are involved. If that logic holds, much of the U.S. economy belongs in the same bucket: financial hedging, real estate speculation, debt financing, insurance, hog and oil futures, currency trading, and more. Policy should not cry “gambling” simply because people risk money on a well-informed view of an uncertain future.

More broadly, whether a given modern activity is gambling or creating a future may seem like hair-splitting. The demarcation between the two activities stems from a past society’s desire to ban gambling and promote a regulated futures industry. But Americans’ views toward gambling have changed substantially as casinos, lotteries, poker tournaments, sports betting and similar activities, both in physical facilities and online, have exploded in popularity and use throughout the nation.

The more appropriate debate and thus perspective is that current prediction markets are interstate or global. The vast majority of users are outside the borders of New York City (Kalshi, Gemini), Panama (Polymarket), or another platform’s home base. That gives the federal government an extensive role under the U.S. Constitution’s Commerce Clause to preempt state jurisdictional claims and explicitly assign jurisdiction to a federal agency or the court system for implementation and oversight. In fact, the CFTC has argued quite convincingly in court that Congress has previously done so in numerous instances for event contracts (or “swaps,” as the agency refers to them). That is, it has already been decided.

Even in the case of gambling, the courts have upheld Congress’s broad authority to restrict individuals’ participation and to usurp state involvement. This should give the Trump Administration wide latitude to push the preemption button on many fronts for the sector, including advocating before Congress and continuing the court battles.

The larger lesson is hard to miss: state-by-state tech regulation has been a mess. Instead of protecting consumers, it has fractured markets, piled on conflicting mandates, and raised the cost of serving Americans across state lines. Those burdens act as barriers to entry, narrowing where companies can operate and leaving other markets behind. Commercial privacy law is just one cautionary tale—an overlapping patchwork of state rules that has burdened interstate commerce and delivered little in return.

The words in Ecclesiastes had it right: we have seen this before. Experience from past state fights over tech policy should make it simple—prediction markets should not be carved up by fifty regulators. If rules are needed, they should be designed from a national perspective with a recognition of interstate commerce.