Prediction Markets and Sporting Events: The Legal Dispute Over Regulatory Jurisdiction Continues
Prediction markets allow users to trade contracts based on the outcome of future events. Under the federal law known as the Commodity Exchange Act (CEA) and related regulations, such markets are deemed “designated contract markets” (DCMs) and are authorized and regulated by the Commodity Futures Trading Commission (CFTC). Kalshi emerged as the leading DCM following its approval by the CFTC in 2020. Others, including Polymarket and PredictIt, have followed. Events contracts are essentially binary options that allow users to buy “yes” or “no” positions on specific outcomes related to economic indicators, weather events, and more recently, political contests and sporting events.
However, critics of prediction markets argue that they resemble gambling and should be regulated as such by the states. Indeed, state gaming regulators have taken the position that, Prediction Markets and Sporting Events: The Legal Dispute Over Regulatory Jurisdiction Continues at least with respect to prediction market contracts concerning sporting events, these products do constitute gambling and are, therefore, subject to state regulation. Kalshi and similarly situated companies disagree, and litigation over this question is now pending in several courts around the country.
Related Knowledge Center: Prediction markets
Platforms are offering a way for users trade positions — place bets — on a wide range of possible events, and newsrooms are starting to incorporate the data.
As the business rapidly grows, critics and opponents are pushing back. Numerous states have argued that the markets are gambling, and sports gambling in particular is regulated by the state. The Commodity Futures Trading Commission, now led by a Trump appointee, disagrees — as did a federal district court judge in a suit involving New Jersey.
Critics see some of the markets as, particularly in the case of military actions, indefensible, and note as well that some large, well-timed bets — “event contracts” — suggest an abuse of insider knowledge of federal actions.