CFTC proposes classifying event contracts as swaps, excludes sportsbook wagers

The Commodity Futures Trading Commission announced two actions on Oct. 9 seeking to clarify the federal regulatory boundary between prediction-market contracts and traditional gambling. The CFTC proposed expressly including sports and other event contracts in the definition of a swap, a category of financial derivative. The CFTC also announced a separate interim final rule excluding sportsbook and casino wagers from that definition.

The event-contract proposal covers sports, politics, cultural events and weather-related outcomes. CFTC Chairman Michael S. Selig said these products fall within the agency's exclusive jurisdiction under the Commodity Exchange Act. The CFTC explains that event contracts often let traders buy yes-or-no positions on a future outcome with a fixed payout, usually $1. Event contracts derive their value from that outcome and can be used to hedge risk or speculate.

The proposed inclusion is not final. The CFTC is seeking written comments within 30 days of the proposal's publication in the Federal Register. The CFTC describes the casino-wager rule as codifying its longstanding position that sportsbook wagers and casino-style gambling products fall outside the swap definition. According to the CFTC, the exclusion takes effect immediately upon publication in the Federal Register. The interim final rule also carries a 30-day comment window tied to that publication. Neither announcement specifies a Federal Register publication date, so Oct. 9 does not establish an effective date or comment deadline.

Federal classification leaves a separate legal question about whether federal regulation displaces state gambling laws. In a Sept. 25 ruling on preliminary-injunction appeals involving prediction-market operator Kalshi, the Sixth Circuit held that Kalshi had not shown its sports-event contracts met the statutory swap definition. The Sixth Circuit alternatively held that, even assuming the contracts were swaps, the Commodity Exchange Act did not expressly or impliedly preempt Ohio's or Tennessee's gambling laws. Establishing swap classification therefore does not necessarily resolve disputes over state authority for operators seeking nationwide access.

Better Markets criticized the distinction between event contracts and gambling wagers. In an Oct. 9 statement, Better Markets securities-policy director Benjamin Schiffrin argued that sports event contracts enable sports betting and should remain subject to state gambling laws.