The US government has made a clear stance that sports betting can be regulated under financial laws, rather than gambling laws. In a recent court filing, the Commodity Futures Trading Commission and the Department of Justice have requested a federal court to prevent Arizona from enforcing its gambling laws against Kalshi, a prediction market operator. The agencies argue that contracts related to sports, elections, and other real-world events are a type of financial derivative, known as swaps, which fall under federal oversight.
If the courts agree, this could shift control of the rapidly growing market from individual states to the federal government, allowing prediction platforms to operate nationwide under a unified set of rules. At the heart of the case is the question of what constitutes a bet. Arizona and several other states believe that contracts on sports outcomes are similar to traditional wagers and should be regulated as gambling, with licensing requirements and consumer protections. However, federal regulators disagree, arguing that the structure of the contracts, not the events they track, is what matters.
Because the payouts depend on the occurrence of a future event with economic consequences, these products are subject to the same legal framework as derivatives tied to commodities or interest rates. This interpretation would place prediction markets firmly under the Commodity Exchange Act, giving the CFTC exclusive jurisdiction and limiting the ability of individual states to restrict or shut down these platforms. The legal battle has been ongoing for months, resulting in conflicting rulings. While a federal appeals court in New Jersey recently sided with Kalshi, finding that its sports contracts are allowed under federal law unless the CFTC intervenes, courts in other jurisdictions have been more receptive to state arguments.
The government has warned that allowing states to prosecute federally regulated exchanges would undermine a national market intended to be overseen at the federal level. If the courts ultimately accept the CFTC's position, prediction markets could operate nationwide under a single federal framework, bypassing the current state-by-state system that governs sports betting. However, if they reject it, these products could be forced into existing gambling regimes or shut down in key jurisdictions.
The federal government is taking a broad view of its authority, arguing that a contract on the Super Bowl is not fundamentally different from one tied to oil prices or interest rates, and it is now up to the courts to decide if this comparison is valid.