The Commodity Futures Trading Commission has proposed adding event contracts covering four categories, including sports, to its swap definition while issuing a separate rule excluding casino-style gambling products.
Summary
- The Oct. 9 proposal covers contracts tied to sports, politics, cultural events, and weather.
- A separate interim final rule excludes sportsbook wagers and casino games from the swap definition.
- Federal appeals courts have reached conflicting decisions on state authority over sports event contracts.
- The NFL has backed New Jersey’s request for Supreme Court review of Kalshi’s sports contracts.
The Commodity Futures Trading Commission announced the proposal on Oct. 9, describing event contracts as financial instruments commonly recognized in the derivatives industry as swaps. In its notice, the regulator argues that explicitly including the products would resolve uncertainty about their classification under the Commodity Exchange Act.
Alongside the proposal, the agency issued an interim final rule covering products it considers outside federal derivatives regulation. According to the separate announcement, wagers placed on sportsbooks and casino games fall within that exclusion.
For the inclusion proposal, the CFTC’s filing sets a public comment period lasting 30 days after publication in the Federal Register. The agency’s casino exclusion will take effect immediately upon Federal Register publication, with a separate 30-day period for written comments.
CFTC proposal places sports contracts under federal oversight
In its proposal, the commission bases its position on the federal definition of a swap, which covers certain payments dependent on events with potential financial, economic, or commercial consequences.
Under the agency’s interpretation, sports, political, cultural and weather events can carry such consequences. The filing argues that the law requires a potential consequence, rather than proof that a financial effect has already occurred.
For weather contracts, the commission points to temperature changes that can affect agriculture, energy consumption and outdoor activity. Its proposal says the possibility of those effects can satisfy the statutory requirement even when a particular temperature reading produces no immediate financial loss.
Describing how Americans use the products, CFTC Chairman Michael Selig said event contracts allow users to “hedge risks, speculate, and provide the public with information about the outcome of future events.”
In the same statement, Selig asserted that the contracts fall within the agency’s exclusive jurisdiction under the Commodity Exchange Act.
The two measures had already entered the federal review process before their release. As crypto.news reported on Oct. 1, the CFTC submitted two rulemaking actions to the White House’s Office of Information and Regulatory Affairs on Sep. 28.
According to that report, the submissions carried separate identifiers: RIN 3038-AF82 for event-contract inclusion and RIN 3038-AF81 for casino-style gambling exclusion. Neither submission was an operative rule at the time of the earlier coverage.
Casino exclusion preserves a separate gambling category
In its accompanying announcement, the commission described the casino exclusion as a formal statement of its longstanding position, rather than a new category of federal derivatives oversight.
“Casino-style gambling products are not derivatives,” Selig said.
According to the chairman, codifying the exclusion clarifies the limits of the commission’s authority over products historically regulated by states.
Sports leagues and state officials have challenged the distinction between sports event contracts and conventional wagering. In its Supreme Court filing, the NFL argues that sports-related contracts require state oversight to protect customers and the integrity of games.
The state enforcement dispute also extends to Polymarket. In a Sep. 24 petition, New York Attorney General Letitia James alleged that the company offered sports contracts without a state gambling license and permitted people under 21 to use its platform.
Reporting published that day detailed how New York sued Polymarket over gambling and sought fines, customer restitution and forfeiture of gains the state alleges were earned illegally. According to that coverage, James had also filed cases involving Kalshi, Coinbase Financial Markets and Gemini Titan.
Appeals rulings leave state enforcement disputed
In litigation involving American customers, federal appeals courts have taken different positions on whether exchange registration prevents states from enforcing sports gambling laws.
On Sep. 25, the Sixth Circuit rejected Kalshi’s injunction requests in disputes involving Ohio and Tennessee. The panel upheld the denial of preliminary protection in Ohio, vacated an injunction in Tennessee and returned both cases to lower courts.
According to the opinion, Kalshi had not established that the sports contracts at issue qualified as swaps. The judges also considered an alternative argument assuming the products were swaps and still found insufficient grounds to displace the states’ gambling laws.
In August, the Ninth Circuit similarly allowed Nevada to enforce its gaming rules during litigation.
By contrast, the Third Circuit’s April decision preserved a preliminary injunction protecting Kalshi against New Jersey enforcement. Its majority found that the sports contracts qualified as swaps and that the exchange had shown a reasonable likelihood of succeeding on its federal preemption argument.
Each ruling addressed preliminary protection during ongoing litigation, rather than establishing a final nationwide judgment on all prediction market products.
Supreme Court filings seek a ruling on sports contracts
Following the Third Circuit decision, New Jersey asked the Supreme Court to review whether federal commodities law prevents states from applying their sports gaming laws to contracts traded on a CFTC-registered market.
In an Oct. 8 brief supporting that request, the NFL argued for state oversight and additional safeguards. Coverage published on Oct. 9 detailed how the league backed Supreme Court review, citing concerns about consumer protection, inside information, and game integrity.
According to the league’s brief, NFL-related markets accounted for $1.8 billion of $3.3 billion in prediction market trading on the season’s first Sunday. The Supreme Court docket gives Kalshi until Nov. 9 to respond to New Jersey’s petition.
In a separate case, Robinhood Derivatives petitioned on Sep. 10 for review of a Ninth Circuit decision involving Nevada gaming officials. Its filing argues that federal law gives the CFTC exclusive authority over covered contracts traded on federally regulated markets.
On Oct. 9, the Supreme Court granted an extension giving respondents in Robinhood’s case until Nov. 13 to answer.
On Polymarket, the contract tracking whether the Supreme Court will accept a sports event-contract case by Dec. 31 displayed approximately 30% when checked on Oct. 10.
