CFTC Seeks Authority Over Prediction Markets
The United States faces a $1.5 billion-per-month market that lies at the heart of the administration’s newest regulatory push, as the Commodity Futures Trading Commission seeks to assert formal authority over the expanding event-contract industry. On October 9, the agency unveiled proposals that would classify sports, political and climate bets as federally-overseen swaps, while exempting traditional sportsbook wagering. Americans employ event contracts daily to manage risk, engage in speculation, and supply the public with data on forthcoming event results.
The Split Between Federal and State Control
The CFTC’s latest action marks another effort to clarify that event contracts fall under its regulatory power through the Commodity Exchange Act. This shift is already transforming the betting and derivatives market: the CFTC reports that sports contracts accounted for $1.2 billion-80% of August’s trading volume. By September 1, seven exchanges registered with the CFTC were already offering sports event contracts, while over 15 Derivatives Clearing Organization applications submitted since 2025 remained unresolved. Some sportsbook operators, like Sporttrade, have even shut down state-approved betting in five states to seek federal approval as an exchange and clearinghouse instead.
For consumers, betting on a football team through a prediction exchange may look no different from placing a wager at a sportsbook. However, the key difference for businesses is whether they must comply with 51% state gaming taxes and federal oversight. The CFTC argues that federal regulation should provide a single national framework for trading, clearing, and market integrity. The commission warns that state enforcement could dismantle federally regulated event-contract markets by forcing them to follow different rules in each state. Meanwhile, states are protecting their revenue streams, as federal alternatives could reduce tax collections and fees. Beyond finances, states also insist on maintaining control over where betting is allowed and what consumer protections apply.
Tribal governments have high stakes in this conflict, including their sovereignty and gambling rights guaranteed by state compacts. The Indian Gaming Association claims prediction platforms are exploiting commodities regulations to bypass these agreements. Appeals courts are split on two core issues: whether sports event contracts qualify as swaps under the Commodity Exchange Act, and if they do, whether federal oversight bars states from applying their own gambling laws. In April, the Third Circuit ruled in favor of Kalshi against New Jersey, suggesting the contracts likely qualify as swaps and that federal law could block state enforcement.
However, the Ninth Circuit later sided with Nevada in Kalshi’s case, refusing to halt state actions. The Sixth Circuit also rejected Kalshi’s arguments, determining the contracts were not swaps and that federal law would not override state restrictions even if they were. Though all rulings are preliminary, they create conflicting legal precedents on whether federally regulated exchanges can operate without state gambling licenses. New Jersey has now petitioned the Supreme Court to review the Third Circuit’s decision, but the Court has not yet decided whether to accept the case.
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Defining the Difference Between Gambling and Derivatives
On October 9, the CFTC introduced a dual regulatory package aimed at codifying its definitions into law. Through a Notice of Proposed Rulemaking, it formally classified sports, political, and cultural event contracts as federally regulated swaps under its jurisdiction. Simultaneously, an Interim Final Rule exempted traditional casino and sportsbook wagering, with Chairman Michael S.
The CFTC’s new rule explains when a wager remains outside derivatives regulation. A product will not be treated as a swap if it is offered under state or Tribal gambling law and customers place bets with the operator rather than trade contracts with one another. Standard sportsbook bets, where a licensed bookmaker sets the odds, remain outside this category. In contrast, event contracts traded between participants at market prices do not qualify for this exemption and may be considered swaps.
The CFTC justified bypassing public comment by citing ‘good cause’ and concerns over market instability. A 30-day comment period follows publication in the Federal Register, potentially sparking legal challenges over whether the agency acted appropriately without prior consultation. The two measures clarify how the CFTC distinguishes gambling from derivatives, but they do not resolve the second part of the dispute: whether states can apply their gambling laws to event contracts traded on federally regulated exchanges.
The Dispute Could End in One of Three Ways
While the CFTC’s rulemaking is an aggressive attempt to plant its flag on the territory, neither state attorneys general nor Tribal gaming authorities are expected to capitulate quietly. With billions in tax revenue and jurisdictional sovereignty at stake, challengers are almost certain to strike back, attacking the agency’s emergency ‘good cause’ bypass in court and doubling down on local enforcement.
