Key Takeaways
- CFTC moves to formalize prediction market oversight.
- Rule could reshape the battle between prediction markets and sportsbooks.
- Federal versus state authority remains unresolved.
A proposal by the US Commodity Futures Trading Commission (CFTC) to establish a framework for reviewing prediction market contracts is setting the stage for a broader battle with big betting.
The proposal, released Tuesday under CFTC Chairman Mike Selig, would update the agency’s decades-old “Special Rule” governing event contracts. The aim is to establish clearer standards for determining when certain markets should be blocked.
While the proposal is aimed at prediction markets, the outcome could ultimately help determine whether federally regulated event-contract platforms emerge as a nationwide alternative to the state-by-state sports betting system dominated by operators such as DraftKings and FanDuel.
CFTC Seeks Clearer Rules For Event Contracts
Under the proposal, the CFTC would create a structured framework for evaluating contracts tied to events involving activities identified in the Commodity Exchange Act — including gaming, war, terrorism, and assassination.
The agency stopped short of proposing blanket prohibitions on specific categories of contracts.
Instead, regulators would evaluate contracts against a set of factors designed to determine whether they are consistent with the public interest.
In an opinion piece, Selig argued that existing regulations have not kept pace with the growth of prediction markets.
“Prediction markets have grown dramatically in recent years,” Selig wrote.
Adding: “The regulatory framework governing these markets has remained shrouded in ambiguity.”
The proposal broadly interprets categories such as war, terrorism, and assassination, reflecting concerns that participants with privileged information could profit from such markets.
The agency also identified several gaming-related contract categories that could face heightened scrutiny — including markets tied to player injuries and casino-style games of chance.
Selig Pitches ‘Rules of the Road’
In a post on X, Selig described the proposal as an effort to provide “transparent rules of the road to identify the contracts Congress directed it to scrutinize.”
“…while letting legitimate markets move forward pursuant to the public interest.”
The chairman also warned that excessive regulatory uncertainty could push activity toward offshore venues operating outside US supervision.
“The challenge,” Selig wrote in his opinion piece, “is that even with safeguards and clearer standards, many event contracts that could be contrary to the public interest may continue to be offered by offshore platforms that operate outside the CFTC’s regulatory remit.”
Potential Collision With Sports Betting Industry
The proposal could have significant implications for the US sports betting industry, which has developed under a state-by-state licensing model since the Supreme Court struck down the federal ban on sports wagering in 2018.
Major operators including DraftKings and FanDuel have spent years gaining licenses across dozens of states while complying with local tax regimes and regulatory requirements.
Prediction market operators argue that event contracts fall under federal commodities law rather than state gambling laws, allowing them to operate under CFTC oversight.
That distinction has become increasingly contentious as platforms such as Kalshi have expanded sports-related offerings.
Attorneys at the law firm Pryor Cashman said the proposal could strengthen arguments that certain prediction market products fall under the exclusive jurisdiction of the federal commodities laws.
“The central question is whether these contracts are fundamentally financial instruments or gambling products,” Pryor Cashman wrote in a report.
Pryor Cashman attorneys noted that it may play a decisive role in determining the boundaries between federal regulation and state gaming laws.
“The proposal does not eliminate the legal questions,” it said.
“What it does is provide a more structured framework that courts, regulators and market participants can evaluate as these disputes continue to develop.”
Several states have argued that sports focused event contracts closely resemble traditional wagering products and should therefore be subject to state gaming oversight.
Prediction market operators maintain that their contracts function as derivatives regulated under the Commodity Exchange Act.
Crypto Platforms Watch Closely
The rulemaking is also being closely monitored by crypto-based prediction market operators.
Many forecasting platforms have historically operated offshore because of regulatory uncertainty in the US.
Supporters of the proposal argue that a clearer federal framework could create a pathway for some prediction-market activity to migrate into regulated US venues.
However, some say restrictions on certain event categories could leave demand for those products concentrated on offshore platforms.
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Kurt Robson is a London-based reporter at CCN, specialising in the fast-moving worlds of crypto and emerging technology. He began his career covering local news in Cornwall after graduating from Falmouth University with First Class Honours in Journalism. There, he cut his teeth on everything from council meetings to missing swans.
He quickly rose through the ranks to become a frontline journalist at several of the UK’s leading national newspapers. Over the years, he has interviewed musicians and celebrities, reported from courtrooms and crime scenes, and secured multiple front-page exclusives.
Following the upheaval of the COVID-19 pandemic, Kurt shifted his focus to technology journalism—just ahead of the AI boom. With a natural curiosity and a trained eye for emerging trends, he has found a new rhythm in reporting on innovation.
At CCN, Kurt's work focuses on the cutting edge of crypto, blockchain, AI, and the evolving digital world. Drawing on his background in people-first reporting and his deep interest in disruptive tech, Kurt delivers stories that are insightful, entertaining, and human-centric.
