In early March, Donald Trump Jr. made a pitch to a crowd of Republican state attorneys general who had gathered for a three-day retreat at the Ritz-Carlton hotel in New Orleans.

Trump, the president’s eldest son, has repeatedly promised to keep his family’s business interests separate from the work of the administration. But at the closed-door event, he stepped into the middle of a ferocious legal battle over whether states or federal agencies should police prediction markets, a booming new industry in which the Trumps have a financial stake.

Sitting onstage for a question-and-answer session with Montana’s attorney general, Trump suggested that state leaders were being led astray by a “vested interest” — gambling firms that wanted to protect their “monopolies” by attacking prediction markets, four people familiar with his remarks said. In reality, he said, the markets already had robust oversight, describing them as a sophisticated financial tool overseen by federal officials, not state attorneys general.

Trump’s tone was friendly, the people said. But his comments, which have not been previously reported, dovetailed with a message his father’s administration has sent to state leaders: Back off.

In lawsuits across the country, red and blue states have united to take on prediction markets like Kalshi and Polymarket, setting up a courtroom battle that will determine whether Americans can use them to bet on sports, politics and virtually everything else.

In total, 20 states are locked in litigation over whether the prediction markets are subject to state laws governing sports betting. Last month, 44 states signed a letter attacking the platforms as a “new form of casino” preying on young people.

State leaders have argued that the markets are dodging regulations and failing to pay state taxes — estimated to total at least $2 billion a year in lost revenue, according to the Tax Foundation, a nonpartisan research group.

The litigation has unleashed an extraordinary blitz of political maneuvering, pitting the federal government against the states. President Donald Trump has declared that he wants prediction markets to thrive under his leadership, without state oversight. Working side by side with Kalshi, his administration has argued in court that the industry’s sole regulator is the Commodity Futures Trading Commission, a small agency that governs markets for commodities like oil and farm goods.

In the half century after it was set up in 1974, the CFTC says, it had never sued a state over regulatory issues. This year, it has sued nine, all led by Democratic governors. Twice, the agency has instructed the prediction markets to sidestep court orders, invoking emergency powers that it hadn’t used for decades.

That aggressive intervention has aligned the agency with the financial interests of the Trump family. In January last year, Kalshi hired Donald Trump Jr. as an adviser; his compensation included more than $300,000 in Kalshi shares, which have multiplied in value. Last year, the president’s son also became an adviser to Polymarket and bought a stake in the company via 1789 Capital, his investment firm.

A spokesperson for Donald Trump Jr. said he “does not interface with the federal government on behalf of any company he invests in or advises.” A Kalshi spokesperson said Trump advises the company on marketing.

The legal battle has also drawn in a powerful coalition of traditional gambling firms, which view prediction markets as a competitive threat and have pressed states to take action. One industry group that represents casino operators is working with former New Jersey Gov. Chris Christie, who has railed against prediction markets on TV.

“A lot of money is at stake,” said Rob Schwartz, who served as the CFTC’s general counsel until last year and has tracked the 17-month barrage of lawsuits. “It will certainly go to the Supreme Court. It’s just a matter of when.”

At the heart of the litigation is a debate over what constitutes gambling.

For years, Kalshi and other prediction markets have been registered with the CFTC and classified the bets on their platforms as “event contracts,” a type of financial tool that derives value from the outcomes of real-world situations. Often the contracts are based on yes-or-no scenarios, like whether it will rain on a certain day. Because these tools are regulated at the federal level, the companies say, prediction markets should be free to operate nationwide.

As the largest prediction market in the United States, Kalshi has faced the brunt of the legal pressure; most of the betting on Polymarket happens internationally, though it now has a small U.S. app.

In a statement, Kalshi said that it offered safeguards for customers and that its business model gave people a real opportunity to win money. The company has a “national framework of regulation, not a state-by-state patchwork,” the statement said, adding that it was “overly aggressive for states to try to shut down a federally licensed exchange.”

But state officials say Kalshi’s position is untenable. The company offers a product nearly indistinguishable from sports betting, the attorneys general argue, and without the protections that states require. In all but a few states, no one younger than 21 can place sports bets, but Kalshi’s app is available to anyone 18 and over.

“You can go onto a site and place money on the outcome of some sports activity,” said Nick Brown, the Democratic attorney general of Washington state, who won a preliminary court victory over Kalshi this month. “That’s the same thing as gambling.”

After the U.S. Supreme Court overturned a ban on sports betting in 2018, most states legalized the industry, imposing taxes that generated more than $3.2 billion in revenue from licensed operations in the last fiscal year, according to the Tax Foundation.

Prediction markets have taken a different path. In 2024, Kalshi won a court ruling that allowed it to offer bets on elections, paving the way for the markets to operate with licenses from the CFTC. This year, Kalshi and Polymarket became cultural phenomena, drawing tens of billions of dollars in monthly betting. New competition has brought the number of registered prediction markets to 13.

Much of the public attention on these markets has focused on their novel offerings, like bets on drug trials or Israeli missile strikes. But about 75% of the activity on Kalshi this year has come from sports, according to The Block, a data provider. (Kalshi has reportedly discussed a partnership with The Athletic, the sports media site owned by The New York Times Co.)

Tarek Mansour, CEO of Kalshi, argues that what his company offers is fundamentally different from traditional gambling. Kalshi does not serve as the “house,” taking the opposite side of every wager. Instead it matches buyers on each side and generates revenue by charging fees, regardless of whether someone wins or loses.

“We’re similar to exactly how the New York Stock Exchange or Nasdaq is regulated,” Mansour said in a January interview.

Not surprisingly, the rise of Kalshi and Polymarket has enraged gambling companies that pay state taxes and operate with state licenses. Some of them, like DraftKings and FanDuel, quickly set up prediction markets of their own. Others fought back, led by the American Gaming Association, which represents casino operators and other gambling firms.

Kalshi is a “backdoor sports betting operation” that is defying state law, Rob Lockwood, the group’s spokesperson, said in a statement.

In December, Tres York, an association executive, dined with Kentucky’s attorney general, Russell Coleman, at Joe’s Seafood in Washington, according to emails obtained by the Times. Afterward, York pitched Coleman’s office on the need to fight back against prediction markets, noting that a coalition of state officials was putting together a legal brief.

“I’d be happy to connect you with the Deputy AG in Nevada who is leading the recruiting efforts to defend states’ rights,” York emailed one of Coleman’s deputies.

Kentucky did not sign the brief, but Coleman eventually sued Kalshi and Polymarket in state court. “These multibillion-dollar corporations and their legal fictions don’t pass the sniff test,” he said in a statement.

A Federal Agency Intervenes

Soon another litigant entered the fray.

In December 2025, Trump’s pick to lead the CFTC, Michael Selig, was sworn in. A technology enthusiast, Selig, 36, had worked with prediction markets and cryptocurrency firms as a corporate lawyer.

At the helm of the CFTC, Selig has filed lawsuits against Kentucky, Illinois and seven other states that have battled the prediction markets. “It’s existential for the agency,” he said in an interview. “If the states are taking pieces out of our statute, that’s a problem for us.”

In fact, the agency has treated the issue as an emergency in some states, worthy of extraordinary use of its powers.

Selig’s response to a little-noticed state court ruling in Michigan underscored how far the administration will go to defend the prediction industry’s interests. In July, a state judge ordered Kalshi to unwind bets from Michigan residents because the company had failed to obtain the proper license.

Invoking rarely used emergency authorities, the agency instructed Kalshi to ignore the court order, even though the company had started canceling bets. The Michigan order “would risk shattering public confidence” in prediction markets, the agency said.

The agency launched a second emergency intervention this month, after a federal judge refused to stop New York from moving to shut down Kalshi’s business there. The CFTC instructed Kalshi to continue operating anyway. Within days, the company cited the measure in a parallel case in Connecticut.

The federal judge overseeing that lawsuit was unimpressed. “The CFTC lacks the authority to dictate an order that conflicts with this court’s decision,” he wrote.

Asked why the agency had sought to bypass the judges, Zach Fulton, a CFTC spokesperson, said it needed to “preserve the status quo while the courts are still deciding these issues.”

Like a growing coalition of blue states, Republican-led Ohio, Nevada, Montana and Tennessee have either sued or issued cease-and-desist orders to force prediction markets to fall in line. But while the CFTC has sued nine states with Democratic governors, its strongest legal action against states led by Republicans has been to file friend-of-the-court briefs. Judges are not required to read such arguments.

Fulton said politics played no role in the legal strategy and that the agency sued the states that were most aggressive.

“The CFTC didn’t pick these states — they picked themselves,” he said.

Kalshi Fights Back

Last month, Pricey Harrison, a Democrat in North Carolina’s House of Representatives, pored over a printout of the latest draft of the state budget. She noticed a concerning provision on Page 626.

Harrison had recently introduced a bill restricting prediction markets. But the budget contained what looked to her like a handout to the industry: A prediction market licensed by the CFTC, the document said, “may operate within the state lawfully as a result of its registration with the commission.” The markets would pay a 6% tax on revenue, lower than the 23% rate imposed on sports gambling firms.

“I’m not the most observant person,” Harrison said, “but I was like, ‘Oh, this smells bad.’”

The provision would allow prediction markets to operate in North Carolina without the threat of a state lawsuit. A Kalshi lobbyist who is a former North Carolina legislator, Jim Harrell, helped shape the language in discussions with the state House’s Republican leadership, two people with knowledge of the conversations said. The company’s feedback secured a lower tax rate than legislators had initially considered.

The legislators also received input from the White House, another sign of the administration’s role in the state-level disputes. The Office of Intergovernmental Affairs shared information about “the federal government’s position on state regulation of prediction markets,” said a spokesperson for state Rep. Destin Hall, the speaker of the North Carolina House. The budget was approved on July 7.

A White House spokesperson said the president believed it was “essential” for the CFTC to maintain exclusive authority over the markets.

Hall’s spokesperson disputed that the tax provision was a giveaway, noting that prediction markets hadn’t been required to pay taxes before. Kalshi said the arrangement in North Carolina was fair to the industry. Because many people win money on prediction markets, the company said, North Carolina will collect taxes on those profits, too.

So far, the litigation has yielded mixed results. All nine of the CFTC’s lawsuits are pending in federal court. Judges in states including Nevada and Washington have ruled against Kalshi and ordered it to cease operations.

While one federal appeals court sided with Kalshi in a case involving New Jersey, on Friday a second appeals court ruled against it in a case involving Nevada. Split appeals court decisions often trigger Supreme Court review.

But policy victories in places such as North Carolina can still be helpful. Two weeks after the budget was signed, a lawyer for Kalshi referred to the agreement in a filing in one of the appellate cases, describing it as a compromise that could apply in other jurisdictions.

The company is pushing for more. As of this month, Kalshi has lobbyists working in all 50 states, a person familiar with the matter said.

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This article originally appeared in The New York Times.

By David Yaffe-Bellany/Sharon LaFraniere/Eric Helgas

c.2026 The New York Times Company