CFTC Jurisdiction Over Sports Event Contracts in the US

Sports event contracts are binary financial instruments traded on exchange platforms known as prediction markets, and their payoff depends entirely on whether a specific sports outcome occurs or does not. That structure resembles a sports bet on the surface, but its mechanics are built more like a commodities exchange than a sportsbook. Participants buy and sell contracts continuously, and the price of a contract at any given moment reflects the market's collective estimate of how likely the outcome is. When the event resolves, the contract simply pays out or it doesn't.

Legalized sports gambling works differently at a structural level. A gaming company sets the odds, adjusts them as it sees fit, and the bettor's wager resolves directly against the house once the event ends. Prediction market platforms, by contrast, make their money through exchange-style trading fees assessed on volume, not through the built-in hold that a sportsbook bakes into its odds. That difference in revenue model is a business-model distinction that becomes central to the legal argument over what these products actually are.

Kalshi and Polymarket are the two largest platforms in this space, though Robinhood, DraftKings, and FanDuel have each added event contracts to their offerings, with variations in how they structure and market them. Kalshi runs a CFTC-registered Designated Contract Market (DCM). Polymarket's arrangement is more complicated. Polymarket's largest exchange is domiciled offshore and restricts U.S. users to close-only access with no new trades, though the company has also acquired a smaller CFTC-licensed exchange and received CFTC approval in November 2025 to run a regulated U.S. platform, creating a dual exchange structure.

Sports contracts have become the dominant category of event contract by trading volume, and that growth has moved this question from an academic dispute among regulatory lawyers to an urgent one for courts, state legislatures, and Congress. The novelty of the product, exchange-traded, fee-based, resolved through a binary outcome rather than a house-set line, is precisely what makes it so hard to classify cleanly under laws written before this kind of market existed.

The single statutory sentence that decides everything

The entire jurisdictional fight comes down to a single question: do sports event contracts meet the Commodity Exchange Act's definition of a "swap"? If they do, federal law governs them and states have no say. If they don't, they are gambling products subject to state law, the same as any sportsbook wager. There is no third category available under the statute as written, and that binary framing is what has made the fight so consequential.

The CEA's definition of "swap" covers any agreement that provides for payments "dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence". That language is broad by design, and the CFTC has leaned into that breadth. The agency's textual argument rests on the statute's repeated use of the word "any," which it reads as deliberately expansive language meant to capture a wide range of contingent-payment contracts. Under this reading, a sports outcome qualifies as an uncertain occurrence, and the downstream financial effects on sponsors, advertisers, broadcast networks, franchises, and local economies satisfy the statute's requirement that the event be associated with a financial, economic, or commercial consequence.

States reject that reading, and they have a statutory hook of their own. The Dodd-Frank "special rule," codified at 7 U.S.C. 7a-2(c)(5)(C)(i), gives the CFTC authority to determine that certain contracts are contrary to the public interest and to prohibit them outright if they involve "gaming". States argue sports contracts fall within that exclusion, and they point to a broader constitutional principle: displacing a state's historic police power over gambling requires an unmistakably clear statement from Congress, something the CEA's general swap definition does not provide.

A third reading comes from the Congressional Research Service rather than from either side of the litigation. A third reading, flagged in a March 20, 2026 policy brief, holds that the CFTC's own proposed rulemaking would depart from the position the agency and certain prediction market platforms had advanced in recent litigation, meaning even the agency's own proposed solution acknowledges the text is not self-executing. That single observation does more to explain why this dispute has escalated into simultaneous litigation, rulemaking, and congressional activity than any policy argument from either side.

Kalshi's expansion forced the question into federal and state courts

The statutory ambiguity might have remained theoretical if Kalshi had not moved first and moved fast. In early 2025, exploiting a more permissive posture from CFTC leadership, Kalshi began self-certifying sports event contracts for listing and public trading, and that decision provoked enforcement actions from multiple states almost immediately. The regulatory door opened when then-Acting Chair Caroline Pham issued a February 2025 press release describing prior CFTC interpretations of event contracts as "a sinkhole of legal uncertainty and an inappropriate constraint on the new Administration," a clear signal that the agency would not stand in the way of expansion. Kalshi took that signal and ran, launching sports-related markets in January 2025 and drawing state enforcement actions in the months that followed.

What followed was not a single lawsuit working its way through a single court system. It was a litigation map, with different courts reaching opposite conclusions about the same underlying product. In New Jersey, the case reached the Third Circuit as KalshiEX LLC v. Flaherty, and in a 2-1 decision issued April 6, 2026, the court affirmed a preliminary injunction barring the state from enforcing its gambling laws against Kalshi, holding that sports event contracts qualify as swaps under the CEA and that both field preemption and conflict preemption apply. The majority reasoned that the outcome of a sports event is "associated with a potential financial, economic, or commercial consequence," which is all the statute requires, rejecting New Jersey's argument for a higher "joined or connected" standard. A federal court in the Middle District of Tennessee reached a similar result on February 19, 2026, granting Kalshi's motion for a preliminary injunction on the finding that sports event contracts are likely swaps and that federal law likely preempts the state's enforcement authority.

Massachusetts and Nevada went the other way. Massachusetts sued Kalshi in September 2025, arguing the platform was offering disguised wagering products, and its Superior Court rejected Kalshi's swap argument as "overly broad," granting an injunction set to take effect March 8, 2026. A Nevada district court was even more direct, holding outright that "event contracts that turn on the outcomes of sporting events are not swaps".

The Third Circuit's ruling comes with an important limitation that keeps the dispute from being settled even in the jurisdictions where Kalshi has won. The Third Circuit panel found only a "reasonable chance, or probability, of winning," explicitly not "more likely than not," and the case now returns to the district court for full merits adjudication. The appellate decision is a preliminary read, and the Ninth Circuit heard consolidated oral arguments on April 16, 2026, in cases involving Kalshi, Robinhood, and Crypto.com, where a result diverging from the Third Circuit would create a circuit split that accelerates the path toward the U.S. Supreme Court.

The CFTC's shift from observer to litigant

The CFTC did not remain a passive observer of this litigation for long. It moved from filing supportive briefs to suing states directly, and that shift changes the character of the dispute entirely, turning it from a question of one company's legal exposure into a constitutional confrontation between a federal agency and a large bloc of state governments. CFTC Chair Michael Selig has been blunt about the agency's posture, describing state enforcement actions as a "power grab" against federal regulatory primacy and stating publicly that the agency intends to defend prediction market platforms against state action.

The agency's legal theory appears in an amicus brief it filed in the Ninth Circuit supporting Crypto.com, arguing that "states cannot invade the CFTC's exclusive jurisdiction over CFTC-regulated designated contract markets by re-characterizing swaps trading on DCMs as illegal gambling". That is a sweeping claim: it treats the swap classification as settled and treats any state effort to regulate these products as an intrusion on federal turf, regardless of how the state characterizes the product under its own law. On April 2, 2026, the CFTC put that theory into direct action, joining the Department of Justice in suing Arizona, Connecticut, and Illinois, arguing the CEA preempts those states' gambling laws as applied to event contracts traded on DCMs. The commission has now sued nine states in total.

The agency's strongest argument for why sports contracts belong under its jurisdiction, rather than under state gambling law, is a commercial one. In its June 2026 proposed rulemaking, the CFTC argued that the price information generated by sports contracts has genuine value for commercial decision-making, useful to sports broadcasters, sponsors, advertisers, fantasy sports operators, sports analytics firms, and other participants in sports-adjacent industries. That framing does real legal work. It tries to recast a product that looks, to most consumers, like a wager on a game, as a price-discovery mechanism serving commercial actors who need reliable probability estimates for business planning. Whether that framing survives contact with courts skeptical of treating consumer-facing sports contracts as commercial infrastructure is a separate question, but the argument is deliberate and central to the CFTC's broader jurisdictional claim.

The strongest arguments against CFTC jurisdiction

The case against federal jurisdiction is not simply a matter of states wanting to protect gambling tax revenue. The case rests on statutory text, legislative history, and a genuine institutional capacity concern that the CFTC has not addressed.

Kalshi's own prior court filings provide some of the most damaging material against its current position. Before shifting its litigation strategy, the company argued that sports betting has no "independent significance" or "economic risks" of its own, and that "Congress did not want sports betting to be conducted on derivatives markets". The legislative history points in the same direction. The watchdog group Better Markets has drawn attention to remarks from Senator Blanche Lincoln, then chair of the Senate Agriculture Committee, who said during debate over the relevant provisions that the intent was not to "enable gambling through supposed 'event contracts,'" specifically naming contracts on events like "the Super Bowl, the Kentucky Derby, and Masters Golf Tournament". That is about as direct a statement of contrary legislative intent as a court is likely to find.

There is also a practical argument about what the CFTC is actually equipped to do. The agency was built to police derivatives and commodities markets, and it lacks the expertise, personnel, technology, and budget needed to police gambling across every state on an open-ended range of sports and non-sports contingencies. Handing it that mandate risks diverting attention from the multi-trillion-dollar markets it already oversees.

Judge Roth, dissenting in the Third Circuit's decision, still conceded that "a plain reading of the Act's text suggests that Kalshi's sports-event contracts fit comfortably within the statutory definition" of a swap. Her dissent turned instead on preemption, not on the swap classification itself, which tells you where the real disagreement inside that court actually lay. The swap definition may be broad enough to capture these contracts on a plain reading; whether that captures displaces state gambling authority is the harder and more contested question.

The CFTC's own rulemaking adds to the uncertainty rather than resolving it. The Congressional Research Service noted that by bringing sports contracts within the scope of Section 5c(c)(5)(C) and Rule 40.11, the proposed rule departs from the position the CFTC and certain prediction market platforms had themselves argued in litigation. An agency cannot simultaneously tell a court that sports contracts are ordinary swaps entitled to full preemption protection and tell the public, through rulemaking, that they require a special category of review reserved for contracts that might be contrary to the public interest. That contradiction will likely surface again as litigation continues.

What the June 2026 proposed rule would permit and prohibit

While the courts fight over jurisdiction case by case, the CFTC is trying to settle the underlying question through rulemaking, though nothing about that process is final. The agency's June 2026 Notice of Proposed Rulemaking draws a line inside the category of sports contracts themselves, permitting some types while prohibiting others, and that internal boundary is itself an admission that not every sports contract fits comfortably under federal derivatives law.

Under the proposal, contracts tied to aggregate outcomes of professional or collegiate sports would likely be permitted. That includes contracts on final scores, point differentials, win-loss results, tournament advancement, individual or team statistical performance, and season-long performance metrics. Contracts tied to more granular or personal outcomes would likely be prohibited: contracts on the occurrence or severity of injuries, on referee decisions, on physical altercations during games, on youth sporting events, and on discrete in-game actions involving specific participants, the category commonly known in sports betting as player props.

The agency's own line-drawing implicitly acknowledges that some sports contracts do resemble gambling in ways the CEA should not protect. By drawing that line itself, the agency is conceding that some sports contracts resemble gambling closely enough that the CEA should not shield them, even while insisting that the aggregate-outcome category belongs firmly within its jurisdiction.

None of this is settled. Comments on the proposed rule closed July 27, 2026, and the rule has not been finalized. States that believe the CFTC lacks authority to regulate sports contracts at all are unlikely to be satisfied by a rule that merely narrows the scope of that claimed authority, since their objection goes to the foundation of the CFTC's jurisdiction, not to where the line gets drawn within it. Platforms, for their part, may push back on the prohibited categories, arguing that contracts on injuries or discrete in-game events are no more or less "swaps" than the aggregate-outcome contracts the rule would allow. The rulemaking narrows the dispute, but it introduces a new battleground rather than closing the old one.

The state and congressional coalition pushing back against the CFTC's approach

The resistance to the CFTC's jurisdictional claim is no longer confined to individual state lawsuits. A bipartisan coalition of attorneys general from most states, joined by senators from both parties, is now formally contesting the agency's authority to bring sports event contracts under federal derivatives law. That breadth of opposition, cutting across party lines and spanning the overwhelming majority of state governments, signals that this dispute has moved well past a disagreement between one company and a handful of regulators.

The pattern by this point is unmistakable. The CFTC's own proposed rule concedes that not every sports contract deserves the same treatment, even as the agency litigates aggressively to defend a broad theory of exclusive jurisdiction.