Controversy Erupts as States Challenge Regulation of Event Contracts
The regulatory battle regarding sports event contracts is heating up, particularly between Missouri and Montana. On September 18, 2026, Missouri Attorney General Catherine Hanaway announced plans to take action against prediction market operators within the state, while Montana opted for a temporary pause on enforcement actions against Kalshi, a prediction market company.
Missouri's Regulatory Approach
Hanaway has made it clear that she categorizes sports event contracts as gambling under Missouri statutes, an interpretation that significantly contrasts with the claims frequently made by prediction markets about their legality. These platforms often argue that their fee structures differentiate them from traditional sportsbooks, creating a gray area in regulation. Yet, Hanaway's decision to extend state gaming regulations to these platforms illustrates a growing trend where states are reluctant to cede any control over gambling within their borders. Similar actions have been taken by states like Kentucky earlier this year, indicating a potentially unified front among states wary of losing tax revenues from gambling activities.
In discussions with Heartland News, Hanaway expressed a willingness to negotiate a settlement, presenting an interesting dynamic in this regulatory standoff. However, she also indicated that if discussions falter, her office is ready to initiate litigation. It's essential to highlight her concerns regarding consumer protections, such as age verification processes and risks of insider trading associated with companies like Kalshi and Polymarket. Failure to adequately address these concerns could indeed lead to legal ramifications, resulting in companies mounting their own defenses in federal court. That scenario complicates the regulatory landscape even further, as companies struggle to navigate both state and federal regulations while safeguarding their business models.
Montana's Non-Enforcement Agreement
Contrasting Missouri's proactive approach, Montana has chosen a more cautious path by entering a procedural agreement with Kalshi on September 17. This agreement effectively pauses any enforcement actions against the prediction market operator, illustrating a nuanced approach to a complex regulatory issue. By opting for a stipulation that prevents the state from conducting investigations or shutting down Kalshi’s event contracts until after a Ninth Circuit review has been resolved, Montana has created a temporary shield around the firm. In an interesting twist, this standoff allows Kalshi to refrain from further legal disputes in Montana during this time period. The outcome of this review, however, looms large—if the Ninth Circuit finds in favor of Kalshi, it may set a significant precedent for how prediction markets are treated nationwide.
When the review process concludes, Montana will need to notify Kalshi 30 days before any regulatory actions, extending the uncertainty for the prediction market company. This notification requirement places Montana in a unique position, putting the power of timing in their hands while signaling the need for caution in their regulatory activities. If you're working in this space, the implications are enormous. Companies must navigate not only state laws but also the unpredictable nature of federal rulings.
Wider Implications of State-Federal Tension
The situations unfolding in Missouri and Montana represent just a microcosm of a broader conflict over authority in regulating prediction markets. States like Connecticut, New York, Arizona, Iowa, and Massachusetts are also grappling with similar regulatory hurdles, as the regulatory discrepancies between states create a patchwork of laws that complicate compliance for operators. The recent decision from the Ninth Circuit has redirected a case involving California tribes back for further adjudication, adding another layer of complexity that may influence how different jurisdictions approach these market models.
On a federal level, the Commodity Futures Trading Commission (CFTC) has expanded its no-action policy, which allows software developers to assist in accessing event contract markets without registering as introducing brokers. However, this has not resolved the fundamental debate about whether prediction markets should be classified as gambling or trading platforms for derivatives. As it stands, the tension between state and federal regulation creates a precarious environment for both operators and investors.
Future Developments
The trajectory for Missouri relies heavily on whether Hanaway's office can negotiate a settlement reflecting Kentucky's approach. If they fail to broker an agreement, the likelihood of litigation escalates, which would add another layer of uncertainty for prediction market companies. Meanwhile, in Montana, the next steps hinge on the outcome of Kalshi's pending Ninth Circuit petition. The additional 30-day notice period for any potential regulatory actions adds yet another layer of unpredictability to an already complicated situation.
Ultimately, the core issue—whether sports event contracts are classified as gambling or preserved as derivatives—continues to unfold. It's a clash that could escalate all the way to the U.S. Supreme Court, seeking a definitive ruling that could either standardize the regulatory framework across states or deepen the divide. The outcome of this legal saga will have ramifications for the entire prediction market sector and the ways in which states assert their jurisdictions over gaming activities.
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