The US Commodity Futures Trading Commission issued a proposed rule on 9 October 2026 that would bring contracts linked to sport, politics, culture and weather under the legal definition of a swap. The agency says the change is needed because appellate courts and state regulators have issued conflicting signals about where oversight of prediction markets belongs. For sports prediction markets, the proposal could set federal derivatives law above state gambling statutes and make Supreme Court review more likely.
How the proposed rule would work
The CFTC proposal would amend the agency’s regulations to state that event contracts are swaps, including those tied to sport, politics, culture and weather. Chairman Michael Selig said event contracts are used to hedge risks, speculate and provide information about future results, and he described them as commodity derivatives within the agency’s exclusive jurisdiction. The regulator said it is clarifying a position it already holds: such products fall within the broad swap definition in the Commodity Exchange Act. The proposal does not seek to bring ordinary casino games into the CFTC’s remit, and the commission said it would not disturb existing regulation of in-person or online casino-style gambling. After publication in the Federal Register, the public will have 30 days to file comments.
The conflicting court decisions
Federal appeals courts have reached different conclusions on the same contracts. The Third Circuit decided in April, in KalshiEX LLC v Flaherty, that sports event contracts could qualify as swaps because outcomes can have commercial or economic consequences. The Ninth Circuit went the other way in August, saying Kalshi’s sports products were closer to wagering than to regulated derivatives and that Nevada could still apply its gaming laws. A Sixth Circuit panel held that even if the contracts were swaps, federal derivatives law would not override state sports gambling statutes. In its proposal, the CFTC drew on the Third Circuit’s reasoning and cited an example: the value of Madison Square Garden Sports approximately doubled while the Knicks made their championship run, and that playoff period produced about $380 million in spending for New York’s economy, according to the commission.
State pushback and booming activity
State regulators have not waited for the CFTC. Minnesota approved a law aimed at prediction markets but faced legal pushback, Arizona brought criminal charges against an exchange, and courts in Michigan, Washington and Nevada ordered sports contracts to be geofenced. New York tried to block certain event contracts, according to the proposal. Meanwhile, turnover has surged. Artemis data show about 2.6 billion trades worth $409.7 billion across prediction markets in 2026 so far, compared with 31.9 million trades and $16.8 billion in 2023. Two platforms, Kalshi and Polymarket, accounted for 89% of volume, equivalent to $364.7 billion, and around 97% of trades. The American Gaming Association says the contracts have already cost states more than $1 billion in lost tax revenue.
Hedging tool or wager?
The legal dispute often turns on whether sports event contracts have a genuine economic use. Peter Sanchez Guarda, a former CFTC lawyer, said major sporting results can affect merchandise, ticket and broadcast income, so there is an arguable economic impact that could be hedged. He added that plenty of contracts are still pure bets, such as whether a first pitch is a fastball or a curveball. Stephen Piepgrass, a regulatory partner at Troutman Pepper Locke, gave the example of a New York bar owner who offered free drinks if the Knicks won the opening game of the NBA Finals and placed a $5,000 prediction trade to offset part of that cost. Such cases show that a subset of sports contracts can reduce existing financial exposure even when many users are simply speculating.
Next steps for operators and states
The proposal is not final. The CFTC must publish it in the Federal Register and then accept comments for 30 days. Because the circuit split already makes Supreme Court review more likely, the rulemaking may proceed in parallel with litigation rather than replace it. Until a final rule is adopted and survives legal challenge, operators and states will continue to face conflicting court orders and state enforcement actions. The commission’s decision to exclude casino-style games may ease some gambling industry concerns, but sports prediction markets would still undergo a significant shift if the definition becomes final.
