State Pressure Forces First Real Pullbacks — Smaller Operators Exit Connecticut and Missouri
State enforcement is starting to produce concrete market exits rather than just litigation. Three prediction market operators — ProphetX, Gemini, and Webull — have withdrawn from Connecticut following cease-and-desist orders to nine companies. In Missouri, PrizePicks proactively suspended new Team Picks sports event contracts ahead of the October 18 compliance deadline, despite not having received a cease-and-desist letter. The pullbacks reveal a split in industry strategy: smaller operators are exiting contested states to avoid legal risk, while Kalshi and Polymarket hold firm on the federal preemption argument and continue operating.
State enforcement against prediction markets has entered a new phase: instead of producing only litigation and counter-litigation, it is now producing actual market exits. In Connecticut, three operators — ProphetX, Gemini, and Webull — have withdrawn from the state following cease-and-desist orders that Connecticut's Department of Consumer Protection issued to nine prediction market operators. The department says it remains in communication with the operators that have not withdrawn, including Polymarket, Coinbase, Crypto.com, Robinhood, Novig, and Underdog. In Missouri, PrizePicks notified customers that it has suspended new Team Picks — its sports event-contract product — 'due to updated legal requirements for prediction markets in Missouri,' ahead of the October 18 compliance deadline set by Missouri Attorney General Catherine Hanaway's September 18 cease-and-desist letters. Notably, PrizePicks was not among the six companies that received those letters; it suspended its offering proactively in response to the regulatory environment.
The pullbacks reveal a split in how the industry is responding to state pressure, defined largely by company size and business model. The operators that are exiting — ProphetX, Gemini, Webull, and PrizePicks — are either smaller prediction market specialists or larger companies for which prediction market sports contracts are a secondary product line rather than the core business. For these companies, the legal cost and reputational risk of fighting multiple state enforcement actions outweighs the revenue from sports event contracts in any individual state. PrizePicks is the clearest example: it suspended its Team Picks product in Missouri even without receiving a cease-and-desist letter, and it kept its traditional fantasy sports product and its Culture Picks contracts running. The calculation is that the sports event-contract product is not worth the regulatory exposure, while the rest of the business is unaffected.
Kalshi and Polymarket, by contrast, are holding firm. The two market leaders have built their entire legal and commercial strategy around the federal preemption argument — that their CFTC registration gives them the right to operate nationwide regardless of state gambling law — and withdrawing from contested states would undercut that position both legally and commercially. For Kalshi, which generates the large majority of prediction market sports volume and is closing a $40 billion fundraising round, conceding any state would signal weakness in the preemption argument that underpins its valuation. The two leaders are instead continuing to operate, continuing to litigate, and waiting for the Supreme Court to resolve the question. The result is a bifurcating market: in contested states, the smaller operators are leaving while Kalshi and Polymarket remain, which paradoxically increases the market concentration of the two largest platforms in exactly the jurisdictions where enforcement is most aggressive.
The pullbacks matter for the broader legal narrative in a subtle way. The platforms' argument to courts and regulators is that prediction market event contracts are legitimate federally-regulated financial instruments, not gambling. But when operators voluntarily suspend sports event contracts specifically — while keeping fantasy sports, culture contracts, and other products running — they implicitly concede that the sports contracts are the legally problematic category, the one that most closely resembles the sports betting that states regulate. PrizePicks suspending Team Picks while keeping Culture Picks is a product-level acknowledgment that sports event contracts carry distinct legal risk. State attorneys general can point to these voluntary pullbacks as evidence that even industry participants recognize sports event contracts are different from the economic and financial contracts that have genuine hedging uses. The exits are a practical win for the state enforcement campaign and a data point that complicates the platforms' all-contracts-are-equivalent framing, even as Kalshi and Polymarket continue to resist.
Operators mentioned in this article
Recent updates
Google Adds Prediction Market Ad Policy — CFTC License Required, Ads Blocked in Five States
Google published a dedicated prediction markets section in its advertising policy on October 15, requiring domestic prediction market operators to hold a CFTC Designated Contract Market license to run ads — a requirement that favors Kalshi and Polymarket US over unlicensed rivals. Google also bars prediction market ads targeting five states where enforcement is most active: Connecticut (added recently), Michigan and New York (July), Ohio (June), and Nevada (earlier in the year). The policy makes Google's advertising platform mirror the state-by-state enforcement map, using commercial access as a de facto regulatory layer.
Kalshi Partners With Signify to Police Athlete Harassment, Codifies Anti-Abuse Rule
Kalshi announced a partnership with Signify Group on October 15 to monitor social media for abuse and threats directed at athletes, coaches, and sports personnel across the NFL, NBA, MLB, NHL, and ATP Tour. Kalshi notified the CFTC of a new rule, dated October 13, that codifies athlete harassment as an 'impermissible activity' on its platform, with sanctions up to financial penalties and permanent account closure. The move follows a September appeal by five major leagues and their players' unions for lifetime bans on abusive bettors, and positions Kalshi ahead of the integrity concerns that sports leagues and regulators have raised about prediction market sports contracts.
CFTC Moves to Classify Event Contracts as Swaps — Attempting to Settle the Core SCOTUS Question by Rule
The CFTC, led by Chairman Michael Selig, moved on October 9 to explicitly classify event contracts as swaps under the Commodity Exchange Act, which would place prediction market contracts squarely under federal swap regulation. The scope covers sports, political, cultural, and weather contracts, while a separate provision excludes casino-style gambling and sportsbook wagers. Selig said the aim is to remove 'any ambiguity' about these contracts. The action targets the exact question dividing the federal circuits and now before the Supreme Court — whether event contracts are 'swaps' — and represents an attempt by the federal regulator to settle that question by rule while the courts remain split.