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A federal appeals court ruling allowing states to regulate prediction markets has deepened the legal fight over whether sports-related event contracts are governed by state gambling laws or federal commodities law.
The dispute centers on platforms including Kalshi and Polymarket. According to the source report, the new ruling conflicts with an April federal court decision that found sports event contracts were swaps under the Commodity Exchange Act, setting up a broader clash that could eventually reach the U.S. Supreme Court.
States and the CFTC are arguing over who has authority
The core question is whether these contracts are gambling products, which states say should fall under their own laws, or financial products regulated exclusively by the Commodity Futures Trading Commission.
The report says 20 states are involved in litigation over the issue, while the CFTC has sued states to block laws that would restrict prediction markets. A separate letter signed by 44 attorneys general argued that “Sports bets are not swaps, futures, or other derivatives,” and said the CFTC lacks authority over them.
The CFTC and industry participants, by contrast, argue that event contracts are federally regulated financial products. The agency has also proposed a rule aimed at defining “gaming” as part of the dispute over sports contracts.
Sports contracts are a major focus of the fight
The report says states contend prediction market platforms are skirting gambling rules, avoiding taxes, and operating in places that do not allow sports gambling, including Texas, California, and Utah.
Sports appear central to the market. A Pew Research analysis cited in the report found sports accounted for up to 80% of Kalshi’s total trading volume. Matthew Bakowicz, a gambling law attorney and consultant quoted in the article, said, “It’s clear what the issue is. It’s centered around sports. It’s clear what the main money-maker is for these companies.”
Bakowicz also said the products “mimic too much what the gambling product would look like,” even as companies and some supporters compare them to other event-based financial contracts.
Congress is reviewing the issue, but no federal law has passed
Congress has not passed legislation addressing prediction markets, though committees have held hearings on the subject. The report says bills dealing with insider trading and digital ads to minors have been introduced but have not gained traction.
The Senate has unanimously voted to ban members and staff from using prediction markets, and House Speaker Mike Johnson and Minority Leader Hakeem Jeffries have both voiced support for a similar ban on lawmakers.
For now, the source report indicates the main unresolved issue is whether sports-related prediction contracts will ultimately be treated as gambling under state law or as swaps under federal law.
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Source: As reported by AUSTIN DENEAN.
