CFTC Proposed Rules Will Allow Majority of Sports Event Contracts

• The Commodity Futures Trading Commission released a batch of proposed rules concerning event contracts
• Including in the newly proposed rules is an allowance of most sports event contracts on online prediction market platforms
• Certain sports event contracts will be prohibited under the new rules

The Commodity Futures Trading Commission this week published a set of newly proposed rules establishing a structured framework for a number of event contracts, including the uber-controversial sports event contract markets.

Under the newly proposed rules, the Commodity Futures Trading Commission (CFTC) will continue to allow the majority of sports event contracts being offered by prediction market operators, but will impose several restrictions on divisive markets that may pose a risk to game outcome integrity.

“The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation,” CFTC Chairman Michael S. Selig said in a released 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.”

Gaming Defined, Sports to Remain

The 267-page proposed rulemaking document sets an official definition for “gaming,” which has been a contentious point in lawsuits involving sports event contracts throughout the country. The newly updated CFTC definition of gaming is now the following:

“Gaming means any activity that: (i) one or more participants typically engage in for purposes of recreation or to entertain others, (ii) is governed by rules; and (iii) includes measurable occurrences or outcomes that depend on the participants’ luck, skill, or athletic ability during the activity.”

The CFTC officially includes “sporting events” under this new definition of gaming.

“Within gaming, the Commission aims to permit contracts settled on aggregate sports outcomes with objective data and integrity infrastructure, while prohibiting pure‑chance games and high‑risk sports‑adjacent designs (e.g., injury, officiating‑only, discrete actions, altercations, pre‑collegiate events).”

The proposals in the new rules will now undergo a 90-day review, with the CFTC accepting public comments on the decisions.

Certain Sports Event Contracts Prohibited

While the newly proposed rules will continue to allow the majority of sports event contracts to be traded on prediction market platforms, the CFTC did set certain prohibitions for sports event contracts that are “contrary to the public interest.”

Under this new rule, the following types of sports event contracts will not be permitted for trade.

• Player injury contracts
• Officiating outcome contracts
• Discrete-action contracts involving specific participants

Discrete-action contracts are types of contracts settled solely on an individual or specific play call for or executed by one player or team, such as the type of pitch thrown by a pitcher or the outcome of one specific shot during the moment of a basketball game.

Additionally, any sports event contracts based on pre-collegiate events will be prohibited.

“The Commission preliminarily believes that the Proposal provides market participants with clarity and predictability by offering a transparent taxonomy that permits aggregate sports outcomes with objective data, while screening out designs prone to manipulation or harm incentives. Furthermore, the Commission believes that the proposed factors focusing on specific circumstances relating to sports contracts provide benefits to the market through enhanced market integrity by prohibiting injury, officiating‑only, limited-control outcomes, and altercation contracts, and protecting minors in pre‑collegiate contexts,” the CFTC wrote in the proposed rules.

Legal Battles Continue

While the CFTC released its proposed rules noting the majority of sports event contracts will be allowed, the legal battles for the sports event contract landscape still rage on.

Mick Mulvaney, executive director of Gambling is Not Investing, a coalition of parents and consumer advocates focused on stopping sports events contracts, criticized the batch of proposed rules and said they do not fundamentally change the fact that sports event contracts are tantamous to sports betting.

“It is settled law that states and tribes are the rightful regulators of sports gambling. State and tribal officials have established thoughtful, voter-approved frameworks – complete with age minimums, consumer protections, integrity standards, and tax structures to support investment in community programs. Now the CFTC wants to supplant state and tribal law and anoint itself a national gaming regulator, allowing companies to simply route sports betting through federal commodities law and avoid the rules,” he said in a released statement.

Prediction market operators, the CFTC, and state regulatory commissions have filed numerous lawsuits over the last year to decide who is able to legally regulate these types of markets. State gaming commissions believe they should have a say over the contracts being traded in the state, which they believe is is the same as sports betting, while the CFTC asserts the Commodity Exchange Act (CEA) has provided the commission with “exclusive jurisdiction” to regulate futures, options, and swaps traded on federally regulated exchanges. 

Most recently, New Mexico Attorney General Raúl Torrez announced the New Mexico Department of Justice (DOJ) filed a lawsuit against Kalshi, Inc., and KalshiEX LLC, alleging the prediction market company operates illegal sports betting in the state.

The complaint from Torrez and the New Mexico Department of Justice, filed in State of New Mexico First Judicial District Court County of Santa Fe, alleges Kalshi’s online platform allows users to engage and wager on the outcome of sports through its sports event contract markets.

The CFTC has yet to respond to the lawsuit, but has responded to several in Rhode Island. The CFTC filed a lawsuit in the U.S. District Court for the District of Rhode Island to halt the state’s lawsuit against two prediction market operators. Rhode Island Attorney General Peter F. Neronha filed lawsuits in Rhode Island Superior Court against both Kalshi and Polymarket, alleging the operators offering sports event contracts is tantamount to illegal sports betting in the state.