The rise of prediction markets and their event contracts – including those that resemble sports betting – is creating a legal and regulatory tangle that may not be easy to sort out, due in part to existing wagering laws.
Yet one federal agency is giving that sorting the old college try, which comes as the definitions of sports betting and financial hedging are getting blurry, bringing new, federally regulated players into competition with state-regulated bookmakers.
The U.S. Commodity Futures Trading Commission (CFTC) announced Wednesday that it will host a public roundtable roughly 45 days after it is done requesting more information on “certain sports-related event contracts.”
Gather round
According to Bloomberg, those requests pertain to the products offered by Crypto.com and Kalshi, which recently launched sports event contracts that allow traders to take a position – or “bet” – on Super Bowl odds and other outcomes.
“The goal of the roundtable is to develop a robust administrative record with studies, data, expert reports, and public input from a wide variety of stakeholder groups to inform the Commission’s approach to regulation and oversight of prediction markets, including sports-related event contracts,” a press release from the CFTC said.
In announcing the roundtable, the regulator also added that it has “identified several key obstacles to balanced regulation of prediction markets,” which was followed by an extensive list of issues, including “other federal laws applicable to sports betting.”
The roundtable will look at these obstacles, as well as “retail binary options fraud and consumer protection,” possible changes to CFTC regulations for prediction markets, and other potential “improvements” that could assist innovation.
“Unfortunately, the undue delay and anti-innovation policies of the past several years have severely restricted the CFTC’s ability to pivot to common-sense regulation of prediction markets,” acting CFTC chairman Caroline Pham said in the release. “Despite my repeated dissents and other objections since 2022, the current Commission interpretations regarding event contracts are a sinkhole of legal uncertainty and an inappropriate constraint on the new Administration. Prediction markets are an important new frontier in harnessing the power of markets to assess sentiment to determine probabilities that can bring truth to the Information Age. The CFTC must break with its past hostility to innovation and take a forward-looking approach to the possibilities of the future.”
Pham’s comments and the CFTC’s plan for a deep dive into prediction market regulation suggest the agency could take a new approach to event contracts.
The acting chairman noted that the regulator must follow the rule of law and the Administrative Procedure Act before changing direction. The roundtable, she said, is “a necessary first step” toward a “holistic regulatory framework.”
The CFTC says it has spotted "several key obstacles to balanced regulation of prediction markets," but the list that follows suggests they have instead identified "a boatload of stuff." pic.twitter.com/b4USEgJi0R
— Geoff Zochodne (@GeoffZochodne) February 6, 2025
What that new framework ultimately looks like remains to be seen. So far, though, it appears much more friendly for prediction markets such as Kalshi.
Under the Biden administration, the regulator pushed back on election-related contracts developed by Kalshi and challenged Crypto.com’s Super Bowl markets. However, Kalshi has prevailed in court thus far, winning the right to offer de facto wagering on U.S. election odds this past November. That case is still ongoing, with oral arguments held last month.
Crypto, meanwhile, has continued to enable bets on the Super Bowl with its sports event contracts. Kalshi (which is advised by one of President Trump's sons) has launched similar products, and both companies are growing their sports-related businesses.
New kids on the block
Those products represent new competition for state-regulated sportsbooks, which are only available where local lawmakers have approved them. Federally regulated prediction markets such as Kalshi are available in all 50 states, giving them broader reach for what is, at least for the moment, a form of legalized sports betting.
The CFTC under the second Trump administration hasn’t given the green light to everything, though. Indeed, the regulator successfully requested that Robinhood “not permit customers to access” sports contracts over questions of legality; Robinhood was offering those contracts in partnership with Kalshi.
Additional pushback could come from the legal gambling industry.
“The American Gaming Association is concerned with current efforts by certain trading platforms and digital exchanges to launch national sports event contracts that appear to circumvent state regulatory frameworks,” the group reportedly said in an emailed statement this week.
In the meantime, the CFTC has “several” concerns it has already identified.
To wit: “existing Commission orders issued to designated contract markets (DCMs) pursuant to regulation 40.11 and related Commission interpretations; Commission rulemakings on event contracts; federal circuit court of appeals and district court orders and opinions, including that 'gaming involves games'; the CFTC’s legal arguments and litigating positions in several ongoing federal court cases; CFTC-registered entities’ legal arguments in court that event contracts based on games or sports contests or sporting events constitute 'gaming' and are therefore prohibited under the Commodity Exchange Act; staff interpretations, other guidance, and current practices on event contracts; existing law and regulation applicable to DCMs and futures commission merchants (FCMs); CFTC examinations, enforcement actions, and investigations; and other issues including but not limited to Constitutional questions such as the Commerce Clause, States’ rights and State regulatory schemes, Federalism, Federal preemption doctrines, and Tribal sovereignty as well as other federal laws applicable to sports betting.”
