The Commodity Futures Trading Commission headquarters in Washington, Dec. 23, 2022.
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A coalition of 44 state attorneys general wrote in a letter to the Commodity Futures Trading Commission on Monday that the agency doesn’t have the power to regulate sports-related event contracts on prediction market platforms.
The letter was sent as the public comment period for the CFTC’s first proposed rule on prediction market regulation expired Monday evening. The measure primarily focuses on exchanges’ sports offerings.
“The Proposed Rule goes beyond the CFTC’s statutory powers, is in tension with the Constitution, and would otherwise be arbitrary and capricious in its current form,” wrote the coalition of states attorneys general, led by Ohio Attorney General Andy Wilson. “The CFTC should start afresh with its rulemaking and clarify that sports bets and gambling cannot be traded on [designated contract markets], but are instead subject to state law.”
Attorneys general representing Florida, Georgia, New Hampshire, Missouri and Texas did not sign the letter.
States and the CFTC have been locked in a jurisdictional battle ever since prediction market exchanges’ volumes exploded last year, primarily driven by the popularity of their sports-related contracts. The 2026 FIFA World Cup sent platform volumes to new heights.
The CFTC — and prediction market platforms — argue that all event contracts are swaps, a derivative that is regulated by the commission. However, states across the country believe that the sports-related contracts look too much like sports betting, which is in their jurisdictional wheelhouse.
In June, the commission released a first draft of its proposed rule on regulating prediction markets. The draft focused heavily on the controversial sports-related event contracts, including describing which ones may end up prohibited.
It also crafted a definition for “gaming,” which the commission in the rule said is something done for recreation or to entertain, is governed by rules and is based on measurable outcomes determined by skilled activity during the activity. In its own letter to the CFTC, derivatives marketplace CME Group disagreed with this definition.
“By defining ‘gaming’ as the sport itself rather than the financial wagering on the sport, the CFTC’s definition suggests the [Commodity Exchange Act] is preempting state sports regulations, which is a striking overreach,” wrote CME general counsel Jonathan Marcus in the letter.
The CFTC has used federal preemption as an argument in court proceedings across the U.S. against states to defend what it sees as its exclusive jurisdiction to regulate prediction markets. The commission is in litigation with nine states across the country to defend that belief.
While the CME is concerned about the federal government regulating sports-related event contracts, the exchange acts as sportsbook FanDuel’s CFTC-regulated exchange for its sports prediction markets.
Meanwhile, prediction market platform Rothera — which launched in June — argued that the commission should adopt the “gaming” definition precisely because it makes it about the activity itself.
“A definition keyed to wagering, or to ‘risking something of value’ would, as the Commission recognizes, sweep in every event contract,” Rothera CEO Thomas Chippas wrote in a letter to the commission. “Rothera agrees that a definition keyed to ‘wagering’ should be rejected.”
Observers of prediction markets widely agree the Supreme Court will likely have the final say in who gets to regulate sports-related event contracts. Until then, a flurry of other court decisions are deciding the status of prediction markets’ offerings.
Those decisions are often yielding diverging results. A Michigan judge in late June blocked platform Kalshi from offering sports bets in the state, while a federal judge in Minnesota on Monday temporarily blocked a statewide ban on prediction markets from taking effect Saturday.
Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.
