Prediction markets and traditional online gambling are moving toward a clearer regulatory divide in the US, as the Commodity Futures Trading Commission (CFTC) pushes to define which products fall under federal derivatives law and which remain outside its scope.
Two measures released by the agency seek to clarify that boundary. One would classify a wider range of event contracts as swaps, covering markets tied to politics, sports, weather and cultural events. The other reinforces the CFTC’s position that conventional casino games and sportsbook wagers do not qualify as swaps. This could prove important as prediction market operators and state gambling regulators continue to clash over who has the authority to oversee sports-related contracts.
Why Prediction Markets Are at the Center of the Fight
Prediction markets allow users to trade contracts linked to the outcome of future events. Supporters argue these products can help people speculate, manage risk and gauge public expectations. But when contracts involve sporting events, they can look a lot like the wagers offered by licensed sportsbooks.
The proposed rule would broaden the definition of a swap to cover event contracts across several categories, aiming to address uncertainty over how these products should be classified under federal law.
Naturally, for the ever-expanding online casino industry, the separate treatment of conventional gambling products is particularly relevant. The CFTC says casino-style games and sportsbook wagers are not derivatives, meaning the agency’s approach to event contracts should not automatically place traditional gambling products under the same federal framework.
States Are Fighting to Retain Control of Sports Contracts
The CFTC’s position that it has exclusive federal authority over event contracts is being challenged by states that argue sports-related products should fall under their gambling laws. Conflicting decisions in the Third and Ninth US Circuit Courts of Appeals have added to the uncertainty over whether certain event contracts qualify as federally regulated swaps.
The dispute could reach the Supreme Court, which is considering whether to hear New Jersey’s petition in Flaherty v. KalshiEX. Gaming regulators from 39 states and the District of Columbia have joined the NFL in urging the court to take up the case.
The NFL has argued that state authorities are at a better place to oversee sports-related contracts, particularly when consumer protection and the integrity of sporting competitions are at stake. In its submission, the league warned that continued uncertainty could allow prediction market operators to exploit the gap between federal and state regulation.
What Happens Next?
Both CFTC measures were released on Friday and carry 30-day comment periods. The interim final rule addressing casino-style gambling takes effect upon publication in the Federal Register, while the proposed swap-definition rule will go through the applicable rulemaking process.
The measures formalize proposals the agency submitted to the White House Office of Information and Regulatory Affairs on September 28. They do not, however, resolve the wider dispute over prediction markets. Even if the CFTC establishes its preferred federal framework, courts may still need to determine how that authority interacts with state laws governing sports betting.
Until the courts provide greater clarity, the boundary between financial trading and sports wagering is likely to remain a major issue for the US gambling market, and we will definitely be keeping a keen eye on those developments.
