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.