The CFTC has proposed classifying contracts for sports and political events as swaps. This move attempts to challenge federal regulatory authority over prediction markets by redefining the regulatory boundaries of financial derivatives. The agency is seeking public comment on proposed rules to include certain event contracts in the definition of "swaps." These proposals still require publication in the Federal Register and public comment, and are not yet final rules.
Simultaneously, the CFTC issued a provisional final rule explicitly excluding traditional gambling products such as sports betting and casino games from the definition of swaps. Both documents reflect a regulatory approach: including eligible prediction market contracts under federal derivatives regulation while keeping traditional gambling within the state-level regulatory system.
However, the decisive factor remains at the judicial level. Regarding whether sports event contracts on platforms like Kalshi and Polymarket constitute financial derivatives and whether state gambling laws continue to apply, U.S. federal appeals courts have diverged: the Third Circuit supported including these contracts in the federal regulatory framework, while the Sixth Circuit ruled that Kalshi sports contracts do not fall under the definition of swaps as defined by the Commodity Exchange Act, and that state gambling laws remain applicable. Rulings from other circuits have further exacerbated legal uncertainty. The National Football League (NFL) has supported pushing the Supreme Court to intervene and clarify the regulatory authority between federal and state governments.
The core of this dispute lies in who will ultimately set the rules and bear the regulatory responsibility for the multi-billion dollar emerging trading market. This CFTC proposal essentially strengthens its jurisdiction over the prediction market through rule interpretation, but whether it can override state gambling regulations depends on public comment, the final rule-making process, and subsequent judicial rulings.
