Gary Gensler says sports prediction markets fall outside CFTC swap rules

Former U.S. Commodity Futures Trading Commission Chair Gary Gensler has joined a growing list of groups challenging sports prediction markets, arguing in a new court filing that Congress never intended federal derivatives laws to cover sports betting contracts.

According to a filing submitted Thursday to the Sixth Circuit Court of Appeals, Gensler said sports-related event contracts offered by prediction market platforms such as Kalshi do not meet the definition of swaps under the Dodd-Frank Act because they are not designed to hedge economic risk.

The filing adds another voice to an intensifying legal battle over whether sports prediction markets should be regulated by the CFTC or treated as gambling products subject to state gaming laws. Tribal organizations, the Indian Gaming Association, the American Gaming Association, and Better Markets also filed amicus briefs supporting state authority in the case.

At the center of the dispute is a lawsuit Kalshi filed against Ohio after the state challenged the company’s sports-related contracts. A federal judge ruled against Kalshi in March, and the matter is now before the appellate court.

“Congress did not include sports betting contracts within the statutory Dodd-Frank definition of swap,” Gensler wrote in the filing. 

“Such contracts do not fit the CEA’s purpose or the statutory language defining swap, which focus on hedging economic risk. Sports bets are very rarely, if ever, about hedging.”

His filing argued that Congress designed swaps as tools for managing commercial and economic risks rather than for wagering on sporting outcomes.

The latest filing arrives as federal regulators continue shaping rules for prediction markets. Earlier this month, the CFTC proposed a framework that would review event contracts individually rather than banning entire categories of markets. 

As previously reported by crypto.news, the proposal could subject some sports contracts, including markets tied to player injuries and in-game events, to additional scrutiny.

Courts weigh federal authority against state gaming laws

Questions over who controls prediction markets have triggered lawsuits across the country.

Several states, including Ohio, Nevada, New Jersey, Maryland, Montana, and Illinois, have challenged prediction market operators, arguing that some sports contracts function as gambling products and should comply with state licensing, tax, and consumer protection requirements.

Meanwhile, prediction market firms have maintained that their products are permitted under the Commodity Exchange Act and fall under CFTC oversight.

Challenging the regulator’s recent position, Gensler argued that the agency’s interpretation stretches beyond what Congress intended when it expanded derivatives regulation through Dodd-Frank. 

“The CFTC now posits hedging theories for some sports bets that are at best only tenuously connected to reliable hedges of commercial risks,” the filing said. 

“That connection, however, is crucial, as Congress included only those event contracts that hedge risks in a manner similar to a swap and are sufficiently associated with a potential financial, economic, or commercial consequence.”

The agency itself has taken the opposite position. In an amicus brief filed last month, the CFTC argued that event contracts traded on designated contract markets under its supervision should be treated as swaps and remain within federal jurisdiction.

Court decisions have so far produced mixed results. The Third Circuit Court of Appeals ruled in April that New Jersey could not stop prediction markets from operating, while judges on the Ninth Circuit appeared more receptive to arguments from state regulators in a separate case.

Legal uncertainty has persisted even as the CFTC advances a federal rulemaking process. The agency received more than 1,500 public comments by early May and later reported receiving more than 3,000 submissions covering insider trading concerns, prohibited contracts, market safeguards, and questions about regulatory authority.

Industry participants including Kalshi, Polymarket, and venture capital firm Andreessen Horowitz have urged the CFTC to retain sole oversight of prediction markets. State gaming officials from Pennsylvania and Tennessee have argued that sports event contracts resemble sports betting and should not fall under the regulator’s authority.

Tribal groups and gaming industry challenge sports contracts

Separate filings submitted Thursday focused on the impact prediction markets could have on tribal gaming operations and state gambling systems.

According to a brief filed by the Indian Gaming Association and affiliated tribal organizations, sports prediction markets interfere with tribal rights established under the Indian Gaming Regulatory Act because gaming activity on tribal lands is required to benefit tribal communities rather than private companies.

The filing accused Kalshi of operating what it described as unregulated gaming activity across state and tribal jurisdictions while diverting revenue away from governments and tribal entities.

Another brief from the American Gaming Association argued that sports prediction markets and traditional sportsbooks are functionally similar. The group cited a trademark application filed by Kalshi that referenced services related to sports betting and gambling activities.

Better Markets also urged the court to reject the classification of sports prediction markets as swaps, pointing to previous statements in which Kalshi distinguished sports markets from political event contracts.

Emphasizing what he described as Congress’ original intent, Gensler argued that lawmakers never expected federal derivatives laws to replace state sports betting frameworks. 

“Senate Majority Leader Harry Reid of Nevada would never have consented to or passively accepted legislation displacing an activity so critical to his state’s economy and politics by permitting sports betting only under CFTC auspices,” the filing said.

The outcome of the case could have significant implications for the industry. If courts ultimately side with the CFTC, prediction market operators may continue offering event contracts under a federal framework. 

If states prevail, platforms could face separate licensing and compliance requirements in every jurisdiction where they operate, with some states potentially pursuing civil or criminal penalties against unregistered operators.

With federal appeals courts issuing conflicting decisions and both regulators and states defending competing interpretations of the law, the dispute appears increasingly likely to reach the U.S. Supreme Court.