The courts are now split. The Ninth and Sixth Circuits sided with states against Kalshi on sports contracts, and the Third Circuit went the other way. New Jersey has asked the Supreme Court to settle it. The CFTC answered by sending two rules to the White House that would define event contracts as swaps. For fantasy players, classic salary-cap DFS still runs under state fantasy laws. But Team Picks, Predictions and exchange products sit right in the middle of this fight, and their availability can change quickly. Check your state for each product you use.
Why a Prediction-Market Fight Is a Fantasy Story Now
A year ago, you could treat prediction markets and fantasy sports as separate worlds. That's no longer true. DraftKings, PrizePicks and Underdog all now offer event-contract products:
- DraftKings launched DraftKings Predictions in December 2025. In its August 6 earnings release, CEO Jason Robins said the company is confident "that we can win the category this NFL season and beyond."
- PrizePicks offers Team Picks, which it describes as event contracts offered by its CFTC-registered affiliate, PrizePicks Predict. As of September 8, you can combine up to four of them with Player Picks in one lineup.
- Underdog launched its own CFTC-licensed exchange, UDX, inside its app in July.
The legal question running through all of it is the same. Are sports event contracts federally regulated derivatives that states can't touch, or are they sports betting that states can regulate? This quarter, the courts started answering, and they don't agree.
July: Minnesota's Ban Gets Blocked
Minnesota passed SF 3432, the first state law to criminalize operating a prediction market, making it a felony. Kalshi, Polymarket and the CFTC itself challenged it in federal court.
In late July, days before the law's August 1 effective date, U.S. District Judge Katherine Menendez granted a preliminary injunction. She found the challengers likely to succeed on their claim that federal law preempts the state ban. Her order bars enforcement against exchanges registered with the CFTC as designated contract markets until the case is decided on the merits.
It wasn't a clean win, though. Menendez wrote that the statute "may not be preempted in all its applications," and that permanent relief "may be much narrower." She faulted both sides for treating the dispute as "all-or-nothing propositions." Minnesota Attorney General Keith Ellison said the state "respectfully disagree[s]," and told Courthouse News the ruling "allows predatory gambling apps to proliferate."
The lawsuits come for DraftKings Predictions
Late July also brought the first wave of private lawsuits aimed at DraftKings' prediction product, as reported by Front Office Sports:
- July 28: A proposed class action in Massachusetts federal court claims DraftKings "misleads consumers into believing the activity is lawful and safe. It is neither."
- July 29: A South Carolina state-court suit from plaintiff James M. Hughes names DraftKings, Polymarket, Crypto.com and others. It cites an old provision known as the Statute of Anne and notes that sports betting "has been illegal in South Carolina since 1912."
- August 3: A second proposed Massachusetts class action calls DraftKings Predictions "an illegal unlicensed sportsbook."
A DraftKings spokesperson said the product "operates in accordance with applicable law and the federal regulatory framework established under the Commodity Exchange Act. We remain confident in our legal position."
Meanwhile, state AGs set a timeline
In mid-July, state attorneys general were already saying out loud where they expected this to end. According to Covers, more than 40 attorneys general signed a comment letter submitted to the CFTC. West Virginia Attorney General JB McCuskey said: "With the amount of money that's going through this, I feel pretty confident that the Supreme Court's going to weigh in probably sometime in 2027."
August: The Ninth Circuit Sides With Nevada
On August 28, the Ninth Circuit ruled in Kalshi's fight with Nevada. It affirmed, in substantial part, the lower court's decision to dissolve Kalshi's preliminary injunction against the state. The court held that Kalshi was unlikely to succeed on its claim that the Commodity Exchange Act preempts Nevada's gaming regulations as applied to its sports-related event contracts. It sent back only the separate question of election contracts.
That was the first big appellate loss for Kalshi's sports contracts. It also set up a direct conflict with the Third Circuit, which had already sided with Kalshi in its dispute with New Jersey.
Also in August: the California DFS trial date
Not every legal story this quarter was about prediction markets. On August 14, a federal judge in San Francisco set a December 21 trial in Zhen v. DraftKings to decide whether DraftKings can keep offering paid daily fantasy contests in California. That case is built on California Attorney General Rob Bonta's 2025 opinion that DFS, "including both pick'em and draft style games," violates state law. We covered it in detail in California DFS on Trial.
September: The Sixth Circuit Deepens the Split
On Friday, September 25, a unanimous Sixth Circuit panel sided with Ohio and Tennessee against Kalshi. The court's core holding: "We hold that Kalshi has not shown that its sports-event contracts satisfy the statutory definition of a 'swap' so as to fall within the scope of the CFTC's 'exclusive jurisdiction.'"
The court also held that even if the contracts were swaps, federal law doesn't preempt Ohio's and Tennessee's gambling laws. It said those laws apply because Kalshi chose to offer contracts "virtually indistinguishable from" sports bets.
Kalshi said it disagreed and doesn't believe the ruling will "survive further review."
| Court | State | Sided with |
|---|---|---|
| Third Circuit | New Jersey | Kalshi |
| Ninth Circuit (Aug. 28) | Nevada | State |
| Sixth Circuit (Sept. 25) | Ohio, Tennessee | States |
| Fourth Circuit | Maryland | Pending |
That's two appellate wins for states and one for Kalshi, with Maryland's case still pending. New Jersey has asked the Supreme Court to resolve the conflict. The CFTC is firmly on Kalshi's side. It argued in an amicus brief that these contracts fall within its exclusive jurisdiction, and it has separately sued nine states over their efforts to regulate prediction markets.
The CFTC's Rule Push
The federal regulator isn't waiting for the Supreme Court. According to CoinDesk, the CFTC sent two rules to the White House Office of Management and Budget, with requests dated September 28:
- A proposed rule that would extend the regulatory definition of swaps to include event contracts. That's exactly the definition the Sixth Circuit said Kalshi's sports contracts don't meet.
- An interim final rule that would remove "casino-style gambling products" from what can make up a swap.
A few things to know:
- The text of the rules hasn't been released. The OMB filings don't include it.
- The CFTC labeled both rules as not "economically significant."
- OMB review is generally a final step before rules go out for public comment. An interim final rule would take effect as soon as it's issued, while staying open for input and revision.
- The CFTC is currently run by one person. Chairman Mike Selig is its lone member.
Read together, the CFTC appears to be drawing a line. Sports event contracts would be in federal territory. Casino-style products would be out. Whether a regulatory definition can settle a question courts are reading from the statute itself is something the courts will have to decide. Watch for legal challenges once a rule is published.
What It Means for Fantasy Players
Here's the practical breakdown, product by product.
Classic salary-cap DFS
Salary-cap contests on DraftKings and FanDuel are not part of the circuit-court fight. They run under state fantasy sports laws and each operator's state-by-state availability. DraftKings, for example, says its DFS platform is available in 44 states and Washington, D.C. The big exception to watch is California, where the December 21 trial will test whether DraftKings can keep offering DFS there.
Pick'em
Pick'em is also offered under state fantasy frameworks, but formats differ by state. In July 2025, Underdog replaced Pick'em in California with a peer-to-peer format called Champions, and in August 2025 PrizePicks moved to a peer-to-peer model nationwide. Nothing in this quarter's rulings directly changes pick'em, but it remains the most scrutinized corner of fantasy. Check the format available where you are.
Team Picks, Predictions and exchange products
This is where the rulings land. PrizePicks' Team Picks, DraftKings Predictions and Underdog's UDX are event-contract products. The Sixth and Ninth Circuit decisions say states can apply their gambling laws to sports contracts like these. The Third Circuit says otherwise. The CFTC says they're federal. That's why these products can be available in one state and not the next, and why that list can change with little notice.
Your account and your balance
None of the rulings covered here was aimed at fantasy accounts directly. Still, the same rule we gave California readers applies everywhere. Don't keep a bigger balance than you plan to play with, and read the notices apps send you. When availability changes, the app will tell you before anyone else.
The Business Backdrop
The money is moving even as the law is unsettled. On July 30, IG Group agreed to acquire Underdog for $1.1 billion upfront, with closing expected in late 2026 or early 2027, pending regulatory approvals. IG says Underdog will operate as a commercially standalone business. PrizePicks' parent, Allwyn, said in its second-quarter results that it is "integrating prediction markets alongside DFS." DraftKings is pushing Predictions hard into football season.
In other words, the companies are building as if event contracts are here to stay. The courts haven't agreed on that yet.
What to Watch in Q4
- The Supreme Court. Whether the justices take up New Jersey's request, and when. State AGs have publicly pointed to 2027 for a ruling.
- The Fourth Circuit. Maryland's case is the next appellate decision in line.
- The CFTC rules. Whether and when the text is published, what the interim final rule actually removes, and who sues.
- Minnesota. The preliminary injunction holds until a merits decision. The judge has already signaled final relief could be narrower.
- DraftKings Predictions lawsuits. The Massachusetts and South Carolina cases are at their earliest stages.
- December 21 in San Francisco. The Zhen v. DraftKings trial on paid DFS in California.
- IG–Underdog. Regulatory approvals for the deal.
The Bottom Line
Q3 turned the prediction-market question into a true circuit split. Two federal appeals courts say states can treat sports event contracts as gambling, one says they can't, a fourth is pending, and New Jersey has asked the Supreme Court to step in. The CFTC is trying to settle it by rule instead. Meanwhile, California's DFS trial is set for December 21.
For fantasy players, the most important thing is to know which product you're playing. Salary-cap DFS and pick'em run under state fantasy laws. Team Picks, Predictions and exchange products are in the middle of the federal-versus-state fight, and they'll be the first to change. Check your state for each one, keep balances sensible, and keep playing where it's available. For platform-by-platform details, see our best picks and our reviews of DraftKings, FanDuel, Underdog and PrizePicks.