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California is now part of a fast-expanding state fight over prediction markets, with proposed AB 1840 taking a narrower approach than some of the bans, taxes, and licensing bills emerging elsewhere.
According to a legal analysis published by Husch Blackwell on JD Supra, AB 1840 would apply a securities-style material nonpublic information standard to public officials and public employees who trade in prediction markets. The proposal stands out because other states have moved more aggressively, including outright bans, new taxes, sports-specific licensing rules, and criminal penalties tied to event contracts.
That broader patchwork is developing while the Commodity Futures Trading Commission maintains that it has “clear and longstanding exclusive jurisdiction to regulate contracts under the Commodity Exchange Act.” The unresolved question is whether courts will ultimately agree that federal law preempts state prediction market rules.
How other states are approaching prediction markets
The article points to several recent examples:
- Minnesota enacted an outright ban on May 18, 2026. Its law would make it a felony to create, operate, or advertise a prediction market platform, with an effective date of Aug. 1, 2026, if allowed by the courts. The CFTC has sued Minnesota and is seeking a preliminary injunction.
- Tennessee enacted a law on May 22, 2026, making manipulation of a prediction market by a party to an event contract a Class E felony, punishable by one to six years in prison and fines up to $3,000.
- Kentucky imposed a 14.25% excise tax on operators’ transaction fees.
- North Carolina authorized CFTC-registered platforms to operate without a state license or registration and set a 6% tax on net trading fee revenue from state residents starting in 2027.
- Illinois amended its Sports Wagering Act to require prediction markets to obtain a sports wagering license for “exchange wagers” and set tax rates of 1.75% per wager up to five million exchange wagers per fiscal year and 3.5% after that.
New York, Pennsylvania, New Jersey, Ohio, Utah, and Hawaii are also part of the debate through proposed licensing, tax, gambling-definition, or integrity measures.
What it means for California readers
For now, the main takeaway is that California is not acting in isolation. AB 1840 fits into a national trend of states trying to define who can trade prediction contracts, under what rules, and with what restrictions.
What remains unsettled is the legal boundary between state authority and federal oversight. Readers should watch whether AB 1840 advances, and whether court fights such as the CFTC’s case against Minnesota clarify how much room states have to regulate prediction markets at all.
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Source: As reported by Jeff Le Riche; Mitchell Perne; Kip Randall.
