New CFTC rules could reshape sports prediction markets and casino contracts

The Commodity Futures Trading Commission is moving forward with two new rules that could have major implications for sports prediction markets and their ongoing legal battles with state gambling regulators.

The CFTC submitted two potential rules to the Office of Information and Regulatory Affairs this week. One would expand the definition of a "swap" to include event contracts, while the other would exclude casino-style gambling products from that definition.

The full text of the proposals has not yet been published, meaning their precise scope, including how explicitly they will address sports event contracts, remains unclear.

Why defining event contracts as swaps matters

The proposal to define event contracts as swaps goes directly to one of the central questions in the legal battle between prediction market operators such as Kalshi and state gaming regulators.

Kalshi has argued that its sports event contracts fall under the Commodity Exchange Act and are subject to federal CFTC oversight, rather than individual state gambling laws.

Federal appeals courts have reached different conclusions on that argument.

The Third Circuit ruled in April that New Jersey could not regulate Kalshi's sports event contracts after finding they fell within the definition of a swap in the Commodity Exchange Act.

More recently, however, the Sixth Circuit ruled that Kalshi had not demonstrated its sports contracts satisfied the statutory definition of a swap in cases involving Ohio and Tennessee.

The Ninth Circuit similarly rejected Kalshi's interpretation, allowing Nevada to enforce its gambling laws against the company's sports event contracts.

Kalshi is also awaiting a Fourth Circuit decision involving its dispute with Maryland.

Could the CFTC rule change the sports prediction market fight?

An explicit CFTC definition of event contracts as swaps could give prediction market operators additional regulatory support as the disputes continue through the courts.

However, a new agency rule would not necessarily settle the issue. Courts can still independently interpret the Commodity Exchange Act and determine whether particular sports event contracts satisfy its statutory requirements.

The timing is nevertheless significant as conflicting appellate decisions increase the possibility that the legal status of sports prediction markets could ultimately reach the U.S. Supreme Court.

The proposed rule itself does not specifically mention sports contracts based on the information currently available. More will become clear when the CFTC publishes the full language.

CFTC could shut the door on casino-style contracts

The second rule could establish a clearer boundary around what prediction markets are allowed to offer by excluding casino-style gambling products from the definition of a swap.

No major prediction market currently offers traditional casino games through event contracts, but the structure could theoretically be used to create contracts based on outcomes such as roulette spins or card games.

The proposed rule appears designed to prevent that expansion before such products become established.

According to Bloomberg, the casino-related rule could take effect as soon as it is published in the Federal Register, if it clears White House review, without going through the usual public comment process.

The broader event-contract rule would face an additional review process before taking effect.

What's next?

For sports prediction markets, the most consequential details are still to come.

The CFTC's decision to pursue an explicit definition of event contracts as swaps could become another important piece of the federal-versus-state regulatory battle, but the impact will depend heavily on the language of the final rule and how courts interpret it.

At the same time, the casino proposal signals that the CFTC may be preparing to draw a clearer line between the event contracts it believes belong in federally regulated prediction markets and products it considers traditional gambling.