CFTC’s gaming definition shakes up US sports betting

• The Commodity Futures Trading Commission has published a 267-page rulemaking proposal that formally defines “gaming” for the first time.
• Critics argue the framework effectively reclassifies sports wagering as financial trading, exempting it from state gambling law.
• Political ties between the Trump administration, CFTC leadership and prediction market operators have intensified scrutiny of the proposal.

The Commodity Futures Trading Commission (CFTC) has published its first formal rulemaking proposal for prediction markets, a move that could fundamentally alter how sports betting is regulated in the United States.

The 267-page document, released earlier this week on Wednesday, sets out a framework for reviewing event contracts and offers the agency’s first formal definition of “gaming”.

Stakeholders will have a 45-day comment window once the proposal appears in the Federal Register, which had not happened at the time of writing. The notice is narrower than an advanced rulemaking notice issued in March, which drew more than 3,500 public submissions.

What the document says

The proposal would amend CFTC Regulation 40.11 and add a new appendix governing how the agency evaluates contracts under the so-called Special Rule, enacted via the Dodd-Frank Act in 2010. That rule gives the commission authority to disallow contracts involving terrorism, war, assassination, gaming, illegal activity under federal or state law, or any other activity deemed contrary to the public interest.

The document features the word “gaming” 222 times. Its central contribution is a formal definition: activity typically engaged in for recreation or to entertain others, governed by rules, with measurable occurrences or outcomes dependent on participants’ luck, skill, or athletic ability during the activity. The proposal also clarifies that elections and awards are contests, not gaming.

A three-step test determines whether a contract can be blocked. Regulators must first determine whether a product qualifies as an event contract, then assess whether it involves an activity specifically identified in federal law such as gaming, war, terrorism, assassination, or unlawful conduct, and finally evaluate whether the contract is contrary to the public interest. A contract would only be subject to prohibition if all elements of the analysis are satisfied.

The agency also acknowledged the scale of the consultation behind the rule. Just 300 of the 3,500 submissions to the March notice were judged to contain detailed recommendations, with the rest deemed duplicative or non-substantive. The CFTC said relevant feedback had been woven throughout the new text.

Sports contracts explained

Sports event contracts sit at the centre of the dispute because they look, in practice, very similar to a conventional sports bet. A trader buys a “yes” or “no” position on an outcome, such as which team wins, the final point spread, or whether a total goes over or under a line, and the contract settles based on the result.

The mechanics mirror a moneyline, spread or totals bet at a regulated sportsbook, the key difference being that the product is structured as a financial derivative traded on a CFTC-registered exchange rather than a wager placed with a state-licensed bookmaker.

Under the new proposal, this distinction becomes formalised rather than incidental. The CFTC aims to permit contracts settled on aggregate sports outcomes with objective data and integrity infrastructure, while prohibiting pure-chance games and high-risk sports-adjacent designs.

In practical terms, that means contracts on moneylines, point spreads, totals and season-long statistics are likely to remain available, since they rely on transparent, verifiable data feeds.

What falls outside that protection is more specific. The CFTC outlines several sports-related contract types likely to be found contrary to the public interest, including those tied to the occurrence or severity of injuries, refereeing decisions, physical altercations during games, and youth sporting events. In-game player prop contracts involving specific participants would also likely be barred.

The justification for permitting the broader category rests on an analogy to commodities trading. The CFTC’s reasoning compares a prediction market on one sporting event to the corn futures market, arguing that just as the corn market is about more than corn, a prediction market about one game is about more than that single game.

Critics argue that a contract on a football game during the World Cup, for example, is functionally indistinguishable from the same bet placed at a licensed sportsbook, regardless of the regulatory label attached to it.

The current situation

The proposal arrives against a backdrop of escalating legal conflict between the CFTC, individual states and the gaming industry.

The CFTC has sued six states, Arizona, Connecticut, Illinois, New York, Wisconsin and Minnesota, over what it views as infringement on its regulatory jurisdiction. Separately, more than 10 states are in litigation with prediction market operators directly, including major gaming states Nevada and New Jersey.

The earlier wave of litigation saw the CFTC take three states to court in April, before escalating to five states the following month.

The dispute also follows Minnesota’s move to criminalise the operation of prediction markets, with New Mexico more recently joining the list of states pursuing legal action against Kalshi. A Minnesota law signed this year would have made operating a prediction market a criminal felony, prompting the CFTC to file suit to block the measure before its August effective date.

Not every ruling has gone the states’ way. A federal appeals court handed Kalshi a major win in April, finding the CFTC holds exclusive jurisdiction over its sports event contracts in New Jersey, the first circuit-level decision of its kind.

The agency previously argued in court that gaming is synonymous with gambling, an interpretation the new proposal explicitly disavows as a “previous error”. The court rejected that interpretation and the commission now agrees, reasoning that defining gaming around wagering would render the Special Rule’s gaming category limitless, since nearly all event contracts could then be considered gambling.

Notably, the review process is designed to apply contract by contract rather than to entire markets. Disallowing a single contract, such as one tied to a player’s performance in the Super Bowl, would not result in a blanket ban on NFL contracts.

Political ties

The rulemaking process has moved unusually quickly given its political weight. It took roughly three months from when Selig’s staff opened a public comment portal in mid-March to draft the rule, secure White House approval and publish the notice. The proposal was released after the White House approved the document.

Selig’s appointment to the role itself drew attention from the start. President Trump nominated the former SEC official as CFTC chair last October, a move widely read as signalling a friendlier federal posture toward crypto and event-contract markets.

Questions over conflicts of interest have continued to shadow the process. Donald Trump Jr is an investor in Polymarket and an advisor to Kalshi, two of the largest prediction market operators directly affected by the rule.

Selig has not needed to consult other CFTC commissioners because there are none, with all four non-chair seats vacant since last year and no announced plans to fill them. Under normal circumstances, the CFTC is required to have at least two commissioners from the minority party able to vote on final rules.

A bipartisan effort to constrain prediction markets has also emerged in Congress. Sens. John Curtis (R-Utah) and Adam Schiff (D-Calif.) introduced legislation in March that would ban event contracts resembling sports bets, reflecting the political pressure building around the issue from both parties.

Michael Selig’s position

Michael Selig, chairman at the CFTC, has positioned the proposal as a balance between regulatory clarity and market growth. He said in a statement:

“The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation.

“This proposal gives the Commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward.”

Selig has also argued that the agency’s approach protects market integrity without obstructing innovation, framing prediction markets as financial products subject to derivatives oversight rather than gambling products subject to state law.

The chairman has become a prominent public figure as the CFTC defends its jurisdiction over the sector both in the media and in court. He has previously drawn a sharp line between the two, arguing that prediction markets cannot restrict winning customers the way sportsbooks can.

AGA’s position

The American Gaming Association (AGA) has been the most vocal critic of the proposal, framing it as an attempt to redraw the boundaries of sports betting regulation entirely. Bill Miller, president and CEO of the American Gaming Association, said:

“This is a remarkable attempt to redefine what constitutes sports betting. It makes a mockery of Congressional intent while going against a bipartisan coalition of 41 Attorneys General, countless legislators across the country, and the 81% of voters who recognize that the so-called ‘prediction markets’ are backdoor sportsbooks evading state and tribal law.”

Miller has not been shy about his frustration with the regulator. He previously described the CFTC chairman in blunt terms during a Las Vegas address, telling the audience the casino industry and states would prevail in their conflict with the agency.

The AGA has also taken its campaign to Capitol Hill, arguing that prediction markets erode state tax revenues that fund regulated gambling oversight. The association has said prediction markets’ expansion into sports has resulted in more than $1 billion in lost sports betting tax revenues across the country, a figure that operators including Kalshi have separately disputed.

Reaction beyond the AGA has been similarly polarised. The Coalition of Prediction Markets, a lobbying group representing exchanges, praised the agency’s “commitment to protecting consumers” and said it looked forward to working with the CFTC on “fair, transparent exchanges”.

By contrast, Mick Mulvaney, a former White House Chief of Staff who now leads the advocacy group Gambling is Not Investing, argued the proposal deserves serious scrutiny from lawmakers, tribes and sports leagues, adding that a sports bet does not stop being a sports bet simply because it is labelled a contract.

Sportsbooks join the gold rush

The proposal lands as the country’s largest sportsbooks are already deep into prediction markets, having concluded that federal oversight offers a faster route to nationwide sports wagering than waiting for individual states to legalise.

DraftKings moved first. The operator launched DraftKings Predictions in December 2025, entering prediction markets under CFTC oversight through a wholly owned subsidiary registered as a CFTC Introducing Broker and member of the National Futures Association, with event contracts available across 38 states.

The app routes its sports and finance markets through the CME Group exchange. The bet on the vertical appears to be paying off. According to its most recent volume figures, DraftKings Predictions recorded $1.3 billion in annualised consumer volume in May, up 24% month-over-month.

FanDuel has taken a similar path through FanDuel Prediction Markets LLC, also CFTC-registered and a member of the National Futures Association. The product offers trading in all 50 states on economic indicators and financial contracts, while users in states where FanDuel does not offer state-regulated sports betting can also trade on sports and entertainment markets.

FanDuel has continued expanding its contract roster, recently adding Crypto.com markets to broaden its sports and entertainment offering.

The pivot has not been without cost on the traditional sportsbook side. Both operators have pulled back from certain state-licensed markets even as they expand federally. They also cancelled their American Gaming Association memberships.

DraftKings CEO Jason Robins has said the company will continue investing heavily in event contracts, telling investors there has been a real lean-in from the CFTC, and that he sees no discernible cannibalisation of sportsbook revenue from the predictions product so far. Robins also sits on the CFTC’s Innovation Advisory Committee, a 35-member body drawing leadership from crypto, prediction markets and finance.

Keep reading

• Prediction markets have “gone parabolic,” warns L&W CEO
• AGA CEO calls CFTC boss “a joke” over prediction markets
• Feds charge Google staffer over $1.2m Polymarket scheme