The fight over U.S. prediction markets has reached a new level of institutional confrontation. The fight is increasingly centering on federal preemption and the CFTC’s authority over event contracts.In testimony before a Senate subcommittee on Wednesday, American Gaming Association CEO Bill Miller called the CFTC a "rogue agency" and accused it of making a "mockery of congressional intent" by allowing financial exchanges to facilitate what he called "backdoor sports betting."AGA's Bill Miller stresses that prediction markets are operating outside the safeguards that define legal gaming in the U.S. Consumer protections, responsible gaming tools, and integrity oversight are not optional.Read more via @WashTimes below. https://t.co/ghtcogqkBD— American Gaming Association (@AmericanGaming) May 20, 2026 The attack cuts to a specific legal question. For brokers and infrastructure providers watching from the B2B side, the real issue is the federal preemption doctrine - the principle that a CFTC license as a DCM or DCO shields a firm from having to comply with 50 different state-level regimes.The appeal of the federal framework is already reshaping business decisions. Sporttrade recently shut down its sportsbook operations to pursue CFTC exchange and clearinghouse status instead. "The CFTC was created to regulate markets critical to the functioning of the nation's economy, not to regulate 'Monday Night Football,'" Miller told lawmakers, arguing the agency is reclassifying gambling as financial swaps. A Multi-Front Regulatory Conflict The AGA's rhetorical offensive tracks an active legal strategy. States are already in federal court: The CFTC recently sued Minnesota to block a law that would make operating, or even assisting a prediction market a criminal felony. CFTC Chairman Michael Selig said the law would turn legitimate hedgers, including farmers using weather contracts, into "felons overnight." The agency is simultaneously in litigation with Arizona, Connecticut, and Illinois, seeking to block those states from using gambling statutes to criminally prosecute federally regulated exchanges. In New York and Massachusetts, the CFTC and federal prosecutors are contesting gaming commission actions against platforms like Kalshi, arguing federal law overrides state unlicensed gambling charges. Former House Financial Services Chair Patrick McHenry and other industry supporters contend prediction markets hold to higher standards than casinos, including mandatory KYC/AML compliance, no access for minors, and that the comparison to gambling is the wrong frame entirely.As a parent, @PatrickMcHenry strongly believes in protecting our kids. The facts:- Only 18+ allowed, full stop - 97% of trading volume is from users 21+ - Median age is 33 - U.S. companies like @Kalshi going above and beyond with facial recognition login checks, selfie…— Coalition for Prediction Markets (@PredictAction) May 20, 2026 What This Means for Brokers The two outcomes here are structurally different, not just legally. If the CFTC defends exclusive jurisdiction, prediction markets can be cleared, integrated, and distributed through any regulated brokerage stack. If the states and the AGA prevail, the federal license becomes, in practical terms, unworkable. Operators would face a state-by-state licensing gauntlet and tax structures that make the asset class unscalable. As Miller put it, states are spending "extraordinary amounts of money" to push the CFTC out of a space where, in their view, it has no legal standing. Whether that argument lands in court will determine not just the rules for prediction markets in 2026, but whether the regulatory foundation under the whole sector is solid at all. This article was written by Tanya Chepkova at www.financemagnates.com.

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