CFTC proposes broader swap definition for sports event contracts
The derivatives regulator has moved to classify sports, political and weather event contracts as swaps, deepening a jurisdictional fight that courts are already split over.
The US Commodity Futures Trading Commission has proposed rules that would formally define sports, political, cultural and weather-related event contracts as swaps, expanding its claimed jurisdiction over the fast-growing prediction markets sector.
The notice of proposed rulemaking was released on 9 October, hours before a busy weekend of football fixtures, and lands amid an unresolved dispute over whether these contracts function as financial derivatives or as sports wagers by another name.
CFTC chairman Michael Selig said event contracts let Americans "hedge risks, speculate and provide the public with information about the outcome of future events," adding that such products are "commodity derivatives squarely within the CFTC's regulatory remit under the Commodity Exchange Act and are within the agency's exclusive jurisdiction."
The proposal builds on the Dodd-Frank Act's "core prongs" definition of a swap and keeps securities-based swaps, which fall under the Securities and Exchange Commission, outside its scope.
It also leans heavily on a favourable ruling the CFTC secured from the US Court of Appeals for the Third Circuit in April, in KalshiEX LLC vs Flaherty, which held that sports event contracts can be classified as swaps because their outcomes carry commercial or economic consequences for a wide range of stakeholders.
In the rulemaking, the CFTC cited that reasoning repeatedly, pointing to sponsors, advertisers, broadcasters, franchises and communities whose finances are tied to sporting results. As an example, it noted that Madison Square Garden Sports' valuation nearly doubled during the New York Knicks' NBA championship run, while the playoff run generated roughly $380 million for New York City's economy, according to the commission's own figures.
That ruling sits in direct tension with an August decision from the Ninth Circuit, where Judge Ryan Nelson wrote for the majority that Kalshi's sports event contracts should be treated as sports wagers rather than risk-transfer financial instruments. The Sixth Circuit has separately found that even if the contracts qualify as swaps, they do not override state sports betting laws.
A split of this kind across federal appellate circuits is typically what prompts the Supreme Court to intervene, and industry watchers are now weighing whether this dispute will be the one that reaches it.
One element of the proposal likely to reassure land-based casino operators is a provision expressly excluding casino-style games from the swap definition, addressing earlier concerns that games such as blackjack could be reconstituted as event contracts. In a note on 11 October, analysts at Citizens, including Jordan Bender, said it was unlikely that Kalshi or Polymarket would move into casino-style games, calling it not a "base-case concern" for investors.
The stakes for the wider gambling industry remain substantial. The American Gaming Association has said the contracts have cost states more than $1 billion in lost tax revenue. Speaking at the AGA's Global Gaming Expo, Nevada Gaming Control Board chairman Mike Dreitzer questioned the legality of the products and accused prediction market operators of deceptive conduct, telling attendees: "All we as regulators ask for is a level playing field."
The CFTC will publish the proposed rule in the Federal Register, opening a 30-day window for public comment before any final rule is adopted.