The Commodity Futures Trading Commission (CFTC) has laid out a new draft of rules to regulate the rapidly growing industry as the agency aims to fortify federal oversight in the midst of heavy opposition and legal action from state governments.
As part of the new guidelines, the likes of Kalshi and Polymarket may be barred from providing certain sports event contracts, including those contingent on officiating outcomes or player injury occurrences. Trading on event contracts involving sports has become a massive profit driver for both companies over recent months.
Certain sports markets not in public interest, new guidelines suggest
CFTC Chair Michael Selig said in a statement that the 267-page proposal represents “a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward.”
That framework includes sports event contracts. Leading figures from the National Basketball Association (NBA) and the National Collegiate Athletic Association (NCAA) have voiced their concern about the potential for match manipulation that could arise in prediction market player prop markets.
The new rules seek to allay those concerns. In the draft, it states: “The Commission believes that event contracts are more likely to be contrary to the public interest when any meaningful information about whether the underlying event will occur is unavailable to the broader market. This includes events that are entirely random or where insight into the underlying event is highly concentrated — in a single individual, for example, or only individuals legally prohibited from transacting.”
The proposal adds prediction markets tied to game outcomes, point spreads, win-loss records, tournament progression and similar metrics could provide useful price-discovery functions and generate valuable information. But it suggested that contracts linked to player injuries, combat sports, youth athletics, officiating decisions or other events that could create incentives for misconduct or manipulation would generally not serve the public interest.
The proposal would also leave election-related event contracts outside the scope of the agency’s public-interest review, potentially easing a regulatory obstacle for prediction market operators ahead of next year’s congressional elections. Election markets have become one of the industry’s fastest-growing business lines.
The CFTC said contracts tied to election outcomes, as well as contests such as the Academy Awards, should not be treated as gaming activities under the proposed framework. Instead, the agency characterized them as contests, placing them in a different category from sports-related event contracts subject to additional scrutiny.
Proposal draws ire from American Gaming Association
The document faces stern opposition from states and Native American tribes that argue sports event contracts amount to illegal gambling. Several have filed lawsuits seeking to block the markets, including Arizona, Nevada, and New York.
Bill Miller, president and CEO of the American Gaming Association (AGA), called the proposal “a remarkable attempt to redefine what constitutes sports betting.” He said prediction markets were illegally “siphoning” tax revenue from state and tribal governments.
“This siphoning will intensify as ‘prediction markets’ continue refusing to comply with state and tribal law,” Miller said.
The AGA has previously estimated that prediction markets have diverted more than $1 billion in tax revenue from states and tribal governments, arguing the lost revenue would otherwise help fund community projects, infrastructure and public services. Prediction market operators dispute the estimate and reject comparisons to traditional sportsbooks.
Alongside Kalshi and Polymarket, a growing number of sports betting and cryptocurrency companies, some with ties to President Donald Trump’s family and business interests, have moved into the sector.
Questions about insider trading have also emerged. Reported cases include a U.S. Special Forces soldier who bet on the capture of Venezuelan President Nicolas Maduro and apparent wagers by former Rep. George Santos on whether he would attend Trump’s State of the Union address. The CFTC, Kalshi and Polymarket say they have systems in place to detect and report suspicious activity.
Most sports related contracts have economic utility, CFTC argues
The CFTC has also argued that sports-related prediction markets can serve a bigger economic purpose, describing professional sports teams as “economic enterprises” and stadiums as “regional economic anchors” that influence local business activity, employment and consumer spending.
Under the proposal, contracts tied to game outcomes and other sports-related events could generate information useful to investors, businesses and policymakers. The agency said data from those markets may help participants assess the economic outlook of teams, leagues and the communities that host them.
“Anyone interested in that team as an economic enterprise can use information derived from those event contracts as one factor in economic decision-making,” the proposal states. The document compares sports prediction markets to agricultural futures, arguing that “just as the corn futures market is about more than just corn, a prediction market about one sporting event is about more than just that sporting event.”
The CFTC also suggests some contracts can provide legitimate market signals beyond entertainment or wagering.
