Prediction markets are platforms where users buy and sell contracts that pay out based on the outcome of real-world events: elections, sports games, economic indicators, or other verifiable events. Platforms like Kalshi and Polymarket register with the Commodity Futures Trading Commission (CFTC) as Designated Contract Markets (DCMs) under the Commodity Exchange Act (CEA). The CFTC regulates event contracts as financial instruments, which prediction market operators argue means state gambling laws are preempted by federal law under the Supremacy Clause. States with active gaming regulators, including Massachusetts, Ohio, Arizona, Nevada, Connecticut, and Illinois, have contested this preemption argument, asserting that Congress didn't intend the CEA to displace state gambling licensing and consumer protection laws. Courts split in 2025-2026: Massachusetts and Ohio rejected preemption; Tennessee found preemption; the Third Circuit ruled 2-1 for Kalshi in April 2026. The CFTC under Chairman Michael Selig has moved aggressively to assert exclusive federal jurisdiction over prediction markets, joining DOJ lawsuits against three states in April 2026.