CFTC splits sportsbooks from sports event contracts

• Interim final rule excludes licensed sportsbook and casino wagers from the swap definition.
• Separate proposal would define sports, political, cultural and weather event contracts as swaps.
• Kalshi holds one appellate win and two losses as New Jersey seeks Supreme Court review.

The Commodity Futures Trading Commission (CFTC) has adopted an interim final rule confirming that wagers placed with state- or tribal-licensed sportsbooks and casinos are not swaps.

Announced on October 9, the rule takes effect on publication in the Federal Register, with comments accepted for 30 days after that date.

The agency also published a proposed rule that would expressly define event contracts based on sports, politics, cultural, and weather-related events as swaps. That measure is not yet in force and is open for comment for 30 days after its own publication.

To qualify for the exclusion, a product must pass two tests set out in the rule text. The provider must be licensed or authorized under state or tribal law. The product must not trade on an exchange or any other multilateral market.

Announcing the exclusion, Michael Selig, Chairman, Commodity Futures Trading Commission, said:

“Casino-style gambling products are not derivatives. Just as the CFTC has done with respect to other products historically regulated by the states, the Commission today provides clarity regarding the limits of its regulatory remit by codifying the exclusion of casino-style gambling products from the ‘swap’ definition.”

Trading the final whistle

Prediction markets sell contracts on real-world outcomes, from elections and weather to Sunday’s NFL slate. Each contract asks a yes-or-no question, and every “yes” position is matched by a “no”.

Prices come from bids and offers on a central order book, not from a bookmaker. According to the CFTC, the exchange earns transaction fees and does not profit from how a contract settles.

Kalshi has operated as a CFTC-regulated designated contract market (DCM) since November 2020. DCMs can list products by self-certifying them, and Kalshi did so with its first sports contracts on January 22, 2025.

That put the exchange on ground the states had spent years building. Since the Supreme Court struck down the federal sports betting ban in 2018, states have set up their own licensing and tax regimes. Sports contracts reach the same customers without a state license.

The Dodd-Frank Act adds a federal complication. Its special rule lets the CFTC block event contracts involving activities such as war, terrorism and gaming. The agency adopted Rule 40.11 in 2011 to do so, and US senators have questioned why it has not been applied to sports.

One win, two losses

Kalshi has one appellate win and two losses, all at the preliminary injunction stage. On April 6, a divided Third Circuit panel upheld an injunction blocking New Jersey regulators. It found Kalshi likely to succeed in arguing that its sports contracts are swaps and that federal law preempts state gambling rules.

On August 28, the Ninth Circuit refused to restore Kalshi’s injunction against Nevada regulators, concluding its sports contracts are likely not swaps. On September 25, a unanimous Sixth Circuit panel ruled that Kalshi had not shown its contracts qualify as swaps.

The Sixth Circuit added that federal law would not displace Ohio’s and Tennessee’s gambling laws even if the contracts were swaps. Further Kalshi appeals are pending in the Fourth Circuit over Maryland and the Second Circuit over Connecticut.

New Jersey has taken the dispute to the Supreme Court in Flaherty v. KalshiEX. Ohio, 38 other states and the District of Columbia have filed a brief backing the petition. Kalshi’s response is due on November 9.

The states are not waiting. Connecticut ordered nine platforms, including Polymarket, Robinhood and Coinbase, to halt sports contracts in September. Ohio followed with cease-and-desist letters to 10 operators and brokerages this month.

Bookies versus order books

The exclusion targets the logic behind Kalshi’s defeats. The Sixth and Ninth Circuits treated sports contracts and sportsbook wagers as legally indistinguishable. In their view, swap status for one would pull every sports bet onto federal markets.

The rule says many courts, states and businesses are working from an “erroneous premise” on this point. It states that it implements an approach suggested by the Third Circuit, which noted Congress had given regulators power to further define swaps.

The CFTC sets out five differences between the products. Event contracts trade at market-set prices and are centrally cleared. Sportsbooks deal with customers directly, at odds the house sets.

The agency concedes a person can get similar economic exposure from either product. It compares the overlap to insurance and credit default swaps, which offer similar protection under different regimes.

On the proposal to classify event contracts as swaps, Selig said:

“Americans use event contracts to hedge risks, speculate, and provide the public with information about the outcome of future events. These 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 new definitions have limits. Law firm Sheppard Mullin noted that even a valid rule confirming swap status would not overcome the Sixth Circuit’s separate preemption holding.

For the platforms holding letters from Ohio and Connecticut, that makes the CFTC’s position an argument, not a shield. Only the Supreme Court can tell three divided circuits where the agency’s line actually sits.