The U.S. Commodity Futures Trading Commission (CFTC) announced two actions on October 9 aimed at clarifying the federal regulatory boundary between prediction-market event contracts and traditional gambling. One proposal would expressly classify contracts tied to sports, political, cultural and weather outcomes as swaps. A separate interim final rule would confirm that sports betting and casino wagers are not swaps. The measures address the classification of financial derivatives and gambling products separately, but do not resolve whether platforms can operate around state gambling laws.
Proposal Covers Sports, Political and Weather Outcomes
The CFTC proposal would expressly bring contracts tied to a range of future outcomes within the definition of a swap. CFTC Chairman Michael S. Selig said the products fall within the agency's exclusive jurisdiction under the Commodity Exchange Act.
Event contracts typically give traders a “yes” or “no” position on a future outcome. Once the result is determined, the contract pays a fixed amount, commonly $1 per contract. The value depends on the outcome, and traders may use the contracts either to hedge risk or to speculate. Because the structure resembles a wager, the regulatory classification will affect which federal rules apply and how platforms can operate.
The proposed swap classification is not final. The CFTC will accept written comments for 30 days after the proposal is published in the Federal Register. The publication date has not yet been announced, so the deadline for comments remains unclear.
Sports Betting and Casino Wagers Set for Exclusion
The CFTC also announced an interim final rule that would exclude sports betting and casino gaming wagers from the definition of a swap. The agency said the measure would formalize its longstanding position that casino-style gambling products, including sports bets and casino game wagers, are not swaps.
Unlike the event-contract proposal, the exclusion would take effect when it is published in the Federal Register. Publication would also begin a 30-day comment period. The CFTC has not provided a publication date, meaning the October 9 announcement does not itself mark the rule's effective date or establish the end of the comment period.
The two actions address the federal classification of event contracts and gambling wagers separately. However, classifying a product as a swap would not automatically allow an operator to offer it in every state. The relationship between federal regulatory authority and state gambling laws remains a separate legal issue for platforms seeking to expand.
Sixth Circuit Ruling Keeps State-Law Question Open
On September 25, in an appeal involving a preliminary injunction sought in connection with prediction-market operator Kalshi, the U.S. Court of Appeals for the Sixth Circuit held that Kalshi had failed to show that its sports event contracts met the statutory definition of a swap. The court also said that, even assuming the contracts were swaps, the Commodity Exchange Act did not expressly or implicitly displace gambling laws in Ohio and Tennessee.
The ruling highlights the distinction between the federal classification of event contracts and a state's authority to restrict a platform under gambling laws. A favorable federal classification would not necessarily settle disputes over whether individual states can regulate the operator's activities.
Better Markets Challenges Sports-Contract Classification
Advocacy group Better Markets also disputed the CFTC's proposed distinction. Benjamin Schiffrin, the organization's director of securities policy, said in an October 9 statement that sports event contracts effectively offer sports betting and should remain subject to state gambling laws.
The next procedural steps for both measures depend on their publication in the Federal Register. The Sixth Circuit's Kalshi ruling also indicates that state-law questions may continue to be litigated even after a federal agency establishes how the products are classified.