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The CFTC is preparing a policy effort that could shape how the federal government treats prediction markets — either as lawful financial contracts or as illegal gambling.
CFTC Chairman Michael Selig said the agency plans to write clearer rules for “event contracts,” including sports-related contracts offered by companies such as Kalshi and Polymarket. He framed the work as an attempt to reduce confusion that has left firms, state regulators, and bettors arguing over where federal authority ends and state gambling oversight begins.
His comments signal a shift in direction — one that matters because prediction markets are no longer a side issue. They have become a direct challenge to the way the United States regulates wagering, raising a fundamental question regulators cannot avoid: Who decides what is a bet and what is a federally regulated contract?
Sports event contracts at center of regulatory dispute
Prediction markets let users buy and sell contracts tied to real-world outcomes — such as whether a team wins a game. The contract price fluctuates based on what traders are willing to pay, reflecting expectations about the outcome.
Operators describe these products as derivatives. They argue that people can use them to manage risk, that markets can aggregate information, and that prices can move quickly as news changes the outlook.
Critics reject that framing. State gaming agencies, tribal groups, and segments of the legal sports betting industry argue that sports event contracts function like wagers. In their view, these products mirror sportsbooks by following the same games and appealing to the same betting behavior.
Critics also focus on where the contracts are available. They say prediction markets can reach users in states where sports betting remains illegal. They see this as a way to bypass state licensing requirements, age limits, and responsible gambling controls.
States crackdown on sports betting markets
Nevada’s gaming regulator has filed a civil enforcement lawsuit against Polymarket to prevent the platform from offering contracts on sports events. The state’s gaming control board argues that the contracts constitute unlicensed wagering that threatens Nevada’s gaming economy.
Other states have followed suit, issuing cease-and-desist orders and imposing restrictions on specific markets. In several cases, these actions have continued even as platforms argue that federal regulations should take precedence.
Selig cited this kind of patchwork as a problem the agency can no longer ignore. He indicated the commission could withdraw prior advisories and replace them with proposed rules open for public comment. A rulemaking process would not resolve every dispute, but it would provide courts, companies, and regulators with a clearer set of definitions to work from.
CFTC looks to clarify market oversight
Selig’s comments align with Washington’s efforts to clarify oversight of new market products. Regulators have faced similar questions in other areas, including crypto-related trading and the mechanics of settlement and collateral. Those debates often turn on the same issue: whether an activity fits within existing financial regulation or requires a different approach.
Prediction markets sit at the center of this broader debate because they blur familiar lines. They resemble trading in form while often functioning like betting in practice. That overlap is why the CFTC’s next move carries significant weight.
Prediction market operators are acting as though clearer federal rules may be on the horizon. Kalshi has sought CFTC approval to offer margin trading to institutional investors. That approach would allow certain traders to post only a portion of a contract’s value upfront. If approved, it would move prediction market products closer to the structure of traditional derivatives markets.
What this means for traders and bettors
For bettors and casual traders, the outcome could change both access and safeguards. If the CFTC decides sports event contracts qualify as permitted derivatives, operators will claim they have a stronger basis to offer them broadly, even when states object.
If the commission instead determines that many sports contracts constitute gambling, operators could be forced to cancel existing contracts.
The industry is already preparing for that fight. Prediction market companies and supporters have formed coalitions to defend sports-related event contracts and to argue that federal regulation can protect users and maintain market integrity.
What comes next is likely a public rulemaking process in which the CFTC seeks to define terms that courts have often had to interpret without clear guidance. Selig’s message was direct: The agency intends to answer the core question in plain terms — when does an event contract remain a financial instrument, and when does it become gambling under a different label?
