New Mexico’s attorney general questions the Commodity Futures Trading Commission’s (CFTC) standing and its preemption argument while writing that CFTC registrant Kalshi “facilitates illegal, underage sports betting” in the state. For these reasons, the state attorney general wrote, the agency’s request for a preliminary injunction to be able to continue to operate should not be granted.
The filing came late Thursday, and the CFTC has until July 30 to reply in one of 10 federal lawsuits the agency has brought against states that have made moves to take action against companies offering prediction products, including sports event contracts. The lawsuit was in response to a state court filing for a temporary restraining order to ban Kalshi.
In addition, the Mescalero Apache Nation sued Kalshi in May in an effort to keep the platform off tribal lands. In New Mexico, retail sports betting has been live since October 2019 and is limited to on reservation.
The state’s arguments are not unique. Since sports event contracts, which mimic traditional sports betting, made their debut about 18 months ago, states and tribes have argued that they belong under state regulation. The CFTC and the platforms themselves — in particular, Kalshi — say the contracts are financial tools, not gambling, and therefore belong under the purview of the CFTC.
More than a dozen states and tribes are in court with the CFTC and/or Kalshi. Courts are split on whether or not sports event contracts are legal in their current form, with some federal courts, including in Maryland, New York, and Nevada, agreeing they should be banned, while others (such as New Jersey) say they should not be.
Looking back two centuries …
In the briefing, New Mexico Attorney General Raul Torrez wrote that “dating back to its territorial days, New Mexico has exercised its inherent police power to regulate gambling,” and he goes on to write that the CFTC’s “official 178-year history of commodities futures markets does not mention sports bets.”
The CFTC lawsuit asks the courts to invoke the Supremacy Clause, which calls for federal law to supersede state law in certain instances. At the top line, the state argues back that the CFTC does not have standing and is unlikely to succeed on the merits of its argument, that the Commodity Exchange Act (CEA) does not preempt state law, and that sports event contracts aren’t “swaps” in the CEA definition.
What a “swap” is has become a key discussion point in multiple cases. The CFTC and Kalshi, in arguing that sports event contracts are not gambling, say a swap is a derivative contract, not gambling. But the state leans into the Sixth Circuit decision in Ohio, where a judge rejected “Kalshi’s request to overturn the denial of a preliminary injunction without deciding the issue” of whether a sports event contract is a swap. The Ohio case has been combined with a similar case in Tennessee and is scheduled for oral argument July 30.
New Mexico’s attorney general also points to the idea that federal preemption is essentially a last resort — and that such a decision should start with the “presumption that federal law does
not override ‘the historic police powers of the States,’ without the ‘clear and manifest’ intent of
Congress.” It also goes on to argue that “field” preemption, a more specific and “rare” route to federal law superseding state law, also does not apply because the CEA “does not comprehensively regulate sports betting in a manner that leaves no room for New Mexico’s involvement.”
Twist on ‘impartial access’
In the brief, the state also touches on the idea that the CEA regulates commodities, not sports betting, and that the 2010 Dodd-Frank Act does not change that, despite adding swaps to the CFTC’s scope. The state also revisits the CEA “Special Rule,” which calls on the CFTC not to approve contracts that are contrary to the public interest — naming gaming specifically.
An interesting argument deep in the brief addresses the idea that CFTC-regulated platforms are required to have “impartial access” to all corners of the U.S. The New Mexico attorney general wrote (bold added by InGame):
The impartial-access rule is understood as an “anti-discrimination command,” not a “limit on a facially neutral requirement” like a state’s regulation of sports betting. Schuler, 2026 WL 1295806, at *6. The rule ensures fair treatment of DCM participants, not a compulsory obligation for DCMs to facilitate sports betting in all 50 states. Id. (finding 17 C.F.R. § 38.151 requires “’impartial’ ‘access’ to whatever ‘market(s)” a DCM offers but does not require a DCM “to offer any ‘particular market’ for its event contracts.”). Indeed, CFTC argues that 17 C.F.R. § 38.151 requires DCMs to offer sports betting nationwide while 17 C.F.R. § 40.11(a)(1) bans event contracts involving “gaming” or “an activity that is unlawful under any State or Federal law.”
Even assuming sports event contracts are not prohibited, Congress enacted a floor, but not
a ceiling, leaving room for state gambling laws such as New Mexico’s.
Among the other arguments:
- The CFTC’s preemption idea violates the Major Question Doctrine
- Sports event contracts aren’t financial tools used to hedge risk
- There is no “financial, economic, or commercial consequence” related to a sports event contract
- The CFTC cannot prove irreparable harm should sports event contracts be banned in New Mexico
