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As prediction markets have exploded in popularity over the past two years, they have also become increasingly controversial – setting off a lobbying-fueled power struggle for regulation of the platforms.

Amid allegations of insider trading, bets on military operations, and deceptive marketing practices, some states are seeking to sue or ban prediction markets. But the federal government has taken an unusual role in the legal battle, with the Commodity Futures Trading Commission suing states that seek to enforce their gambling laws against prediction-market platforms.

Prediction market companies contend they are offering financial transactions known as swaps – which are regulated by the Commodity Futures Trading Commission, a federal agency – while many states argue they are gambling operations, akin to sportsbooks and casinos. Gambling is regulated by the states.

Several lawsuits addressing whether state law applies to prediction markets have advanced to federal courts, but because judges have split on their rulings, the question is still unsettled and moving towards the Supreme Court.

Although market leader Kalshi argues it should be regulated at the federal level, the company’s lobbying and spending demonstrates a push to gain state-level influence – especially in the states spearheading regulation.

CBS Touts Using Data From Kalshi, Their Sponsor, in Election Coverage

So far in 2026, Kalshi, its competitor Polymarket and the Coalition for Prediction Markets have spent at least $3 million on lobbying and campaign contributions across the federal and state levels.

Kalshi Directs Political Spending to Governors and State AGs

State attorneys general are leading the regulatory fight against prediction markets – and the majority are united in the opinion that CFTC regulation should not preempt state gambling laws. In July, a coalition of 44 state AGs signed onto a letter to the CFTC arguing that prediction markets are a “new form of casino.”

But just as attorneys general and prediction markets appear to be battling each other, Kalshi is pouring hundreds of thousands of dollars into the two major political organizations dedicated to electing and supporting AGs.

According to IRS filings reviewed by OpenSecrets, in the first half of 2026, Kalshi gave $147,500 to the Republican Attorneys General Association and $170,000 to the Democratic Attorneys General Association.

Kalshi has also donated directly to some attorneys general – including the super PAC supporting Ken Paxton’s run for Senate in Texas and the campaigns of Vermont’s Charity Clark, Oregon’s Dan Rayfield and Florida’s James Utheimer. In response to the contributions, Rayfield and Clark told local news outlets they are not influenced by political donations. A spokesperson for Paxton’s super PAC told Politico that Paxton “has fought at every turn to hold big corporations accountable.”

The New York Times reported in August that Donald Trump Jr., who serves as a strategic advisor to Kalshi and Polymarket, told Republican state AGs not to fight prediction markets. Trump Jr.’s venture capital firm is invested in Polymarket and he has an equity stake in Kalshi.

The head of Kalshi’s state relations, Blake Bee, was previously director of the National Association of Attorneys General’s Center for Leadership Development, where he worked........

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