CFTC Proposes Updated Rules for Sports, Event Contracts

^{The CFTC would ban markets likely to be "contrary to the public interest," such as youth sporting events. (Photo: Ascannio / Alamy)}

The Commodity Futures Trading Commission (CFTC) released a 267-page proposal on Wednesday that said it would modernize its regulations and more clearly define what kinds of contracts prediction markets would be allowed to offer in the United States.

The proposed rules would offer some restrictions on contracts related to war, casino-style gaming, and some types of sporting outcomes, while still largely allowing prediction markets to offer contracts on most sporting events.

CFTC to Review Certain Markets, Sports Contracts Stay in Play

Prediction markets like Kalshi and Polymarket make a significant percentage of their revenue from sports-based contracts, with Kalshi reportedly making as much as 90% of its estimated revenues from trading on sports, according to The Financial Times.

Under the proposal, the CFTC would still review each event contract individually, though it noted several types of markets that it said would likely be “contrary to the public interest,” a standard it would use to prohibit trading. That would include markets on youth sporting events – anything below the collegiate level – injuries, or decisions made by game officials and referees. 

The rules would likely also ban markets on prop bets, as the CFTC lists “discrete-action contracts involving specific participants” among the categories targeted for prohibition.

“The Commission believes that event contracts are more likely to be contrary to the public interest when any meaningful information about whether the underlying event will occur is unavailable to the broader market,” the CFTC said in its proposal. “This includes events that are entirely random or where insight into the underlying event is highly concentrated.”

In those latter categories, the CFTC said that it would not allow trading on casino-style games that were entirely based on luck, such as lotteries or the spin of a roulette wheel. Some exceptions could be made for events such as poker tournaments where participant skill is a major factor. In addition, the commission said it would ban event contracts based on “terrorism, assassination, or war,” and that this would include any contracts that could settle based on declared wars or other military conflicts.

CFTCM Chairman Michael S Selig, currently the only sitting commissioner on the community, said in a statement that the proposal will allow them to put more scrutiny on a certain contracts and legitimize the market further.

“The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation,” Selig said in a statement. “This proposal gives the Commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward.”

However, the CFTC is maintaining that it has the jurisdiction to allow prediction market platforms to offer sports contracts. The commission argues that Congress indeed knew that it was allowing the possibility of sports contracts when it amended the Commodity Exchange Act via the 2010 Dodd-Frank Act.

Rule Change is Latest Salvo in War Over Prediction Markets

The proposal comes as state and tribal officials have launched legal efforts across the country in an effort to prevent prediction markets from offering sports-based contracts in their jurisdictions, saying that these contracts break state gaming laws. Kalshi, Polymarket and others have argued that they are solely governed by the CFTC, which the commission has supported in court. Results of these cases have so far been mixed, with a showdown at the Supreme Court of the United States seeming likely in the future.

The new rules proposed by the CFTC have done nothing to change the opinions of those regulators and the traditional gaming industry.

“This is a remarkable attempt to redefine what constitutes sports betting,” American Gaming Association President and CEO Bill Miller said in a statement. “It makes a mockery of congressional intent while going against a bipartisan coalition of 41 Attorneys General, countless legislators across the country, and the 81 percent of voters who recognize that the so-called ‘prediction markets’ are backdoor sportsbooks evading state and tribal law.”

The CFTC says that is will accept public comments on the proposed rules for a 45-day period before the agency implements and potential changes.