We Will See You in Court.

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Super Bowl LX generated over $1 billion in prediction market trading volume on Kalshi alone.

That's a 2,700% increase from last year.

Two days later, CFTC Chairman Michael Selig posted a video directed at state attorneys general and filed a federal court brief to back it up.

"The CFTC will no longer sit idly by while overzealous state governments undermine the agency's exclusive jurisdiction over these markets."

Then he ended with six words that changed the dynamic for every prediction market operator in the country: "We will see you in court."

This is the first time a federal regulator has formally intervened in litigation to defend a frontier industry against state governments trying to shut it down.

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The Federal Government Just Picked a Side

Yesterday, the CFTC filed a friend-of-the-court brief in the Ninth Circuit supporting Crypto.com in its escalating legal battle with Nevada's Gaming Control Board.

The brief argues that prediction markets are federally regulated derivative markets, not state-regulated gambling. The CFTC has exclusive jurisdiction. States don't get to decide.

This is not a neutral statement. This is a federal agency taking sides in active litigation.

Selig described prediction markets as tools that allow Americans to "hedge commercial risks like increases in temperature and energy price spikes" and serve as "an important check on our news media and our information streams."

The scale of the fight is huge. 

Approximately 50 active legal cases are currently pending against prediction market platforms across multiple states, including Nevada, Massachusetts, Maryland, Arizona, Michigan, New York, and Illinois.

The response was immediate.

BetMGM CEO Adam Greenblatt told Axios that prediction market platforms "pay no state taxes, there are no consumer protections, there are no penalties for underage play."

The jurisdictional argument is simple. Traditional sportsbooks operate under state gaming licenses. They pay state taxes. They comply with responsible gambling requirements in each state they operate. They're legal in roughly 38 states. Major markets like California, Texas, and Florida remain closed.

Prediction markets operate under federal CFTC oversight as financial exchanges. They classify as derivatives, not gambling. They can operate in all 50 states. No state gaming taxes. Minimal responsible gambling requirements.

States see this as a loophole. The CFTC sees it as its legal mandate.

The $10 Billion Opportunity

The numbers explain why everyone is fighting.

DraftKings reported Q4 2025 revenue of approximately $1.99 billion, a 43% year-over-year increase, beating earnings expectations. The company posted its first-ever annual positive net income: $3.71 million for FY2025.

But the forward-looking number got the attention.

CEO Jason Robins called DraftKings Predictions "the most exciting new growth opportunity" since sports betting legalization in 2018. He put a number on it: $10 billion in annual gross revenue potential over time.

Wall Street wasn't entirely convinced. FY2026 revenue guidance came in at $6.5 to $6.9 billion, which was 8-11% below the $7.3 billion analyst consensus. The stock dropped approximately 12%.

DraftKings is integrating its acquired Railbird Technologies exchange by mid-2026 and plans to launch a dedicated market-making division. The Predictions product is already live in 38 states with sports contracts in 17 states. 

Super Bowl Sunday saw 3x the prior record for daily trading volume.

And DraftKings isn't alone in the pivot.

• Kalshi's valuation doubled from $5.5 billion to $11 billion during 2025, processing $23.8 billion in total notional volume. 

• Polymarket received a $2 billion investment from Intercontinental Exchange, the parent company of the New York Stock Exchange, pushing its valuation to approximately $8-9 billion.

Combined weekly volume across all prediction market platforms exceeded $4 billion in December 2025.

These are not experimental products. They are significant financial businesses generating institutional-scale transaction flows.

And that's exactly why states responded the way they always respond when frontier industries prove their model works.

The States Strike Back

Three simultaneous counterattacks are underway: taxation, enforcement, and legislation.

Tax Cascade

Michigan Governor Gretchen Whitmer proposed three gambling tax increases in her February budget targeting approximately $196 million in new annual revenue to stabilize Medicaid funding.

The proposals: a per-wager fee of 25 cents on the first 20 million bets and 50 cents thereafter, an 8% surcharge on online casino revenue above $185 million, and elimination of promotional deductions.

Michigan would become only the second state to implement a per-bet fee. Illinois was first.

Here's how that worked out.

Illinois bettors placed 15% fewer wagers year-over-year after the fee took effect, according to Illinois Gaming Board reports. Sportsbook operators responded by passing costs to bettors through transaction fees. 

Michigan isn't the only state doing this.

Arizona Governor Katie Hobbs proposed raising sports betting taxes from 10% to 45% for operators generating $75 million or more per month. West Virginia introduced a bill to increase its rate from 10% to 25%.

The pattern is consistent. States wait for operators to prove the revenue model. Then they extract.

And that extraction is precisely what makes the CFTC's federal preemption argument so financially significant. 

Prediction markets under CFTC jurisdiction pay zero state gambling taxes. That's the structural advantage driving the entire fight.

Enforcement Front

While taxes target traditional sportsbooks, state enforcement is going directly after prediction markets.

On February 6, a Massachusetts judge denied Kalshi's emergency motion to stay a geofencing injunction, requiring Kalshi to block Massachusetts users from sports contracts within 30 days.

This is the first time a court has forced a prediction market platform to shut down operations in a state.

Polymarket responded aggressively. On February 9, the platform filed a preemptive federal lawsuit against the Massachusetts Gaming Commission, seeking preliminary and permanent injunctions against state enforcement.

Polymarket's filing included an explicit warning that state enforcement actions would cause "termination of banking and commercial relationships."

For prediction market platforms, the fight isn't just about whether they can operate in one state. It's about whether state enforcement creates the kind of "reputation risk" that causes banks and payment processors to cut them off entirely.

The same debanking dynamic that cannabis operators know intimately.

Congressional Push

On February 10, Representative Dina Titus introduced the Fair Markets and Sports Integrity Act, which would prohibit CFTC-registered exchanges from listing contracts tied to athletic competitions or casino-style gaming outcomes.

"These prediction markets are rapidly expanding without the same guardrails that apply to licensed, regulated gaming operators," Titus said.

Why does this bill matter?

Sports contracts represent more than 80% of Kalshi's total volume, according to Dune Analytics data. 

Remove sports, and the prediction market business model collapses.

The bill is unlikely to pass a Republican-controlled House. But it defines the terms of the counterattack and signals that the gaming industry's lobbying apparatus is actively working to close the federal pathway.

The Pattern Holds. With One Difference.

In our January 7 issue, we identified a three-stage cycle that stigmatized industries follow when they scale successfully.

Stage 1: Prove the model works. Generate measurable revenue. Demonstrate real user demand.

Stage 2: Governments extract revenue. Tax increases arrive within months of proof of viability.

Stage 3: Banking access does not follow policy changes. Alternative infrastructure scales in parallel.

Prediction markets are deep into Stage 2. Super Bowl volume proved the model. Tax proposals from Michigan, Arizona, and West Virginia arrived within weeks. State enforcement is accelerating. Congressional legislation followed.

But something genuinely new happened this month.

A federal regulator picked a side.

Not neutrality. Not "we're monitoring the situation." The CFTC chairman told state attorneys general he would see them in court. 

Then he filed the brief. Then he created a 35-member Innovation Advisory Committee that includes the CEOs of both Kalshi and Polymarket alongside executives from Coinbase, Robinhood, FanDuel, DraftKings, Nasdaq, and CME Group.

For operators across frontier industries, that's worth paying attention to.

Not because the CFTC's intervention guarantees prediction markets will win. But because it establishes a template.

When an industry can secure favorable federal classification, a federal agency has institutional incentive to defend its jurisdiction. The CFTC isn't defending prediction markets out of altruism. 

It's defending its regulatory authority against what it calls an "onslaught" of state encroachment.