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 Three prediction market operators — ProphetX, Gemini, and Webull — have withdrawn from Connecticut following cease-and-desist orders to nine companies.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 In Connecticut, three operators — ProphetX, Gemini, and Webull — have withdrawn from the state following cease-and-desist orders that Connecticut's Department of Consumer Protection issued to nine prediction market operators. The department says it remains in communication with the operators that have not withdrawn, including Polymarket, Coinbase, Crypto.com, Robinhood, Novig, and Underdog.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
Kalshi's Parlays Drive Back-to-Back $5B Days — and Hand Critics Their Strongest Argument
Kalshi traded a record $5.33 billion on November 7 and $5.36 billion on November 8, with multi-leg parlay-style 'combos' making up roughly 75% of both days' volume. Its 30-day volume topped $100 billion. But the parlay dominance cuts against the platform's legal defense: parlays are a quintessential sportsbook product, and the American Gaming Association has told the Second Circuit that parlays make up about two-thirds of Kalshi's volume and should be treated as sports bets. The implied house edge on 10-plus-leg combos is around 25%, undercutting the argument that these are neutral financial instruments rather than gambling.
Cruz Bill Would Require State or Tribal Approval for Sports Contracts — a Bipartisan Legislative Threat Emerges
Senator Ted Cruz, who chairs the Senate Commerce Committee, is preparing a bill that would bar federally regulated prediction markets from offering gambling-tied event contracts, including sports, unless a state or tribal government authorizes them. It would not ban the contracts nationwide but would require platforms to obtain approval jurisdiction by jurisdiction, resembling state-by-state sportsbook regulation. The proposal arrives as Democrats take control of both chambers after the midterms, creating a potential bipartisan reckoning: a Republican committee chair and a newly skeptical Democratic majority both eyeing restrictions on a sector that had relied on federal protection.
CFTC Tells Platforms to Stop Geofencing States — Directly Colliding With State Court Orders
The CFTC issued an interpretation on November 5 of its 'impartial access' core principle, telling regulated exchanges including Kalshi and Polymarket to drop state-by-state geographic blocks within 30 days or explain why they cannot. The demand collides head-on with existing state court orders that require the platforms to geofence: Washington ordered Kalshi to geofence in August, and Michigan ordered it to use licensed geolocation to block the state in September, with a $500,000 daily fine for violations. Chairman Michael Selig framed the interpretation as a uniformity requirement. The platforms are now caught between a federal demand to unblock states and state court orders to block them.