The Commodity Futures Trading Commission (CFTC) has proposed a rule to expand the definition of swaps to include event contracts based on sports, politics, cultural, and weather-related events. The agency stated in its notice of proposed rulemaking that it has historically recognized many event contracts as covered by the Commodity Exchange Act's swap definition.
The proposal represents the latest move in an ongoing regulatory dispute between the CFTC and state regulators over prediction markets. State authorities argue that sports event contracts constitute sports bets falling under their jurisdiction, while the CFTC maintains that these contracts are swaps subject to its exclusive authority.
Courts have issued conflicting rulings on the matter. The Ninth Circuit and Sixth Circuit courts of appeals ruled against prediction markets, classifying sports contracts as sports bets. The Third Circuit, however, ruled in favor of these platforms, finding that the CFTC has exclusive jurisdiction and that event contracts qualify as swaps.
States have pursued enforcement actions against prediction market platforms. New York sued Polymarket, alleging it was operating an illegal gambling operation.
The CFTC simultaneously issued an interim final rule explicitly excluding casino-style gambling products, including sportsbook and casino game wagers, from the swap definition. CFTC Chair Mike Selig stated that casino-style gambling products are not derivatives.
Sports organizations have weighed in on the dispute. The NFL filed an amicus brief supporting New Jersey's petition to the Supreme Court, arguing that prediction markets imitate sports bets and should be regulated as gambling products. Robinhood has filed its own petition urging the Supreme Court to grant the CFTC exclusive jurisdiction over prediction markets.
