CFTC Proposes Separating Prediction Markets from Casino Gambling by Defining Event Contracts
The U.S. Commodity Futures Trading Commission (CFTC) has introduced two proposals: one defining event contracts as "swaps" under federal law, and another excluding traditional casino gambling from this definition. These measures aim to clarify CFTC’s jurisdiction and distinguish financial derivatives tied to events from gambling activities, amidst ongoing disputes with states that could escalate to a U.S. Supreme Court case.
Purpose and Content of the CFTC Proposals
The CFTC introduced two major regulatory proposals. The first expands the definition of “swap” under federal law to include event contracts related to sports, politics, cultural happenings, and weather. The commission emphasizes these contracts are financial instruments commonly recognized in trading as swaps.
Chairman Michael Selig stated these products constitute commodity derivatives squarely within the CFTC’s exclusive jurisdiction under the Commodity Exchange Act. The proposal aims to dispel ambiguity and establish clear regulatory guidelines.
Excluding Traditional Casino Gambling from Swap Definition
The second proposal is an interim final rule that formalizes the CFTC’s position that casino-style gambling products, like sportsbook bets and casino games, are not considered “swaps.” Selig noted that these products are not derivatives and have historically been regulated by states. This measure clarifies the limits of the CFTC’s authority in distinguishing these activities.
Ongoing Legal Battles and Jurisdictional Conflicts
Several states have sued prediction market operators such as Kalshi and Polymarket, accusing them of illegal gambling. The CFTC countersued to assert federal jurisdiction over event contracts, arguing they fall outside state regulator control.
Recent court decisions are mixed. In September, the Sixth U.S. Circuit Court of Appeals unanimously ruled states Ohio and Tennessee can regulate sports event contracts under state gambling laws, rejecting Kalshi’s claim that these are federally regulated swaps. In contrast, an April ruling by the Third Circuit Court of Appeals allowed Kalshi to operate in New Jersey, backing the argument for federal preemption.
Future Outlook and Potential Impact
The dispute is moving toward a potential Supreme Court showdown to resolve the jurisdictional split between federal agencies and states. A coalition of state lawmakers has filed an amicus brief urging the Supreme Court to adjudicate the Kalshi case. The ruling could set a precedent on whether prediction markets are governed primarily by federal financial law or state gambling laws.
Why it matters
This news is significant for defining regulatory boundaries in the rapidly growing field of prediction markets—platforms enabling bets on future events. The CFTC seeks to assert federal regulatory authority over such contracts given their financial nature, whereas several states view these transactions as gambling subject to state laws. The outcome of this conflict will profoundly influence the development and legal acceptance of prediction markets, as well as the division of powers between federal and state regulators in the United States.
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