Democrats' midterm wins raise scrutiny questions for prediction markets
Democratic control of Congress and new state attorneys general could sharpen oversight of Kalshi and Polymarket, even as legal experts split on how much the midterms actually change.
Democrats took control of the House and Senate in last week's midterm elections, a shift that legal observers say could reshape the regulatory fight surrounding prediction markets, according to Legal Sports Report.
Operators including Kalshi and Polymarket have spent nearly two years in litigation with state gaming regulators after launching sports-related event contracts in 2025. States argue the products amount to unlicensed sports betting under state law, while the operators maintain they are financial instruments regulated solely by the Commodity Futures Trading Commission.
The legal picture remains unsettled. The Third Circuit Court of Appeals ruled 2-1 against New Jersey in April, while the Ninth Circuit ruled 3-0 in favour of Nevada in a separate case involving Kalshi. In September, New Jersey Attorney General Jennifer Davenport asked the Supreme Court to take up the dispute, posing the question of whether states retain authority to regulate sports event contracts given the 2010 Dodd-Frank Act.
Bob Jarvis, a gaming law professor at Nova Southeastern University, told Legal Sports Report he does not expect the midterms to significantly alter the trajectory of that case. "The issue of their legality now is firmly before the courts, and I believe that the U.S. Supreme Court will agree to hear New Jersey's challenge to Kalshi," he said, adding that "the Democrats have too many other irons in the fire."
Jarvis said a stronger Republican showing might have shifted the Court's posture toward Trump-aligned arguments, but that the ultimate outcome would likely have favoured the states regardless. "I do think that the mid-terms weakened Trump, and to that extent his defeats last night might have some influence on New Jersey's case," he said.
Sports and gaming attorney Daniel Wallach offered a more pointed assessment, arguing that a Democratic-controlled Congress is likely to intensify scrutiny of an industry he said has expanded under lax federal enforcement. "There are serious questions about whether these contracts constitute unlawful gambling under existing state and federal law, and whether consumers are being exposed to products that lack the protections required in regulated gaming markets," Wallach said, predicting the shift "could prompt congressional hearings, investigations, pressure on the CFTC, and potentially legislative proposals."
Wallach singled out CFTC Chairman Mike Selig as likely to face direct congressional questioning. Selig had worked on behalf of venture capital firm Paradigm prior to taking the chairmanship, filing submissions with the CFTC in 2024 that pressed the agency to accept prediction markets as legitimate; Paradigm subsequently invested in Kalshi, according to Wallach. As chairman, Selig has since led the CFTC's defence of federal jurisdiction over event contracts against state regulatory claims.
Changes at state level could also open new enforcement fronts. Georgia and Texas both elected Democratic governors and attorneys general, a shift Wallach said could bring fresh scrutiny to the sector. He noted that outgoing Texas Attorney General Ken Paxton had declined to join a multistate enforcement push against prediction markets, while Kalshi and its chief executive had contributed to Paxton's political committees and to the Republican Attorneys General Association.
Iowa was flagged as another state to watch. Its current attorney general successfully defended Kalshi against a preemption challenge while stating she had no intention of pursuing enforcement, a position Wallach suggested could shift under new leadership.