Lawmakers in Washington are moving closer to a direct debate over whether Congress should impose clearer rules on sports-related prediction markets, as a widening conflict between the Commodity Futures Trading Commission and state gaming regulators raises questions about legal authority, consumer protection and federal enforcement capacity.
The issue was at the center of a House Agriculture Committee digital assets subcommittee hearing on Tuesday, where lawmakers examined whether the CFTC has the tools, budget and legal mandate needed to oversee a fast-growing market that allows people to trade contracts tied to real-world events, including sports outcomes. The hearing reflected a growing concern in Congress that prediction markets are expanding faster than the regulatory framework built to govern derivatives trading.
Representative Johnson of South Dakota said derivatives markets have changed sharply over recent decades and that laws written for older market structures are now being tested by digital platforms, new financial products and event-based contracts. He said the rise of prediction markets has created difficult questions about where financial regulation ends and gambling oversight begins.
The hearing came as CFTC Chair Selig has taken a more assertive position on the agency’s authority over prediction markets that offer sports and other event-based contracts. The CFTC has argued that federally regulated prediction market platforms fall under its exclusive jurisdiction, even when state officials say the same products violate local gaming laws. That dispute has already triggered legal fights and could ultimately require Congress to clarify the boundary between federal derivatives law and state gambling statutes.
The stakes are rising quickly. Platforms such as Kalshi and Polymarket have drawn significant attention as trading volumes increase and as event contracts become more widely used by retail traders, sports followers and politically engaged users. Kalshi’s valuation has been reported near $22 billion, while Polymarket has been valued at about $15 billion, according to market figures cited in the debate. The scale of those platforms has made it harder for lawmakers to treat prediction markets as a small or experimental corner of finance.
In March, the CFTC opened a rulemaking process aimed at developing a broader regulatory framework for prediction markets. That process is expected to address how the agency should define permissible event contracts, how platforms should manage market integrity risks, and what types of contracts may cross into areas that Congress or state governments consider off limits.
But lawmakers at the hearing raised a second issue that may prove just as important as legal authority: whether the CFTC has enough people and money to enforce whatever rules Congress or the agency decides to apply.
The CFTC has requested $410 million for fiscal year 2027, about 12.3 percent more than the previous year. By comparison, the Securities and Exchange Commission requested $1.908 billion, a reduction from the prior cycle but still far larger than the CFTC’s budget. The SEC employs more than 4,000 people, while the CFTC has roughly 550 staff members.
That gap has long been a source of concern among market observers, especially as the CFTC has been asked to handle a wider range of responsibilities involving digital commodities, cryptocurrency-linked derivatives, swaps, futures, options and now event-based markets. The agency’s mandate covers some of the largest and most complex markets in the world, yet its staffing remains small compared with other major federal financial regulators.
Committee Chair Thompson of Pennsylvania said any new legislation should begin with a careful assessment of where current law is unclear. He argued that Congress should not move simply for the sake of moving, but should first identify where authority gaps exist and where existing rules may already be sufficient.
Representative Scott of Georgia warned that giving the CFTC more responsibilities without additional funding could weaken enforcement instead of strengthening it. His comments reflected a recurring concern in Washington: Congress often expands agency mandates without providing the resources required to carry them out.
Johnson later said the CFTC has operated under budget constraints for years and that lawmakers need to examine whether the agency can realistically monitor the scale and speed of today’s digital markets. He suggested that Congress may eventually have to step in because neither the courts nor the CFTC alone can resolve the broader policy questions now surrounding prediction markets.
“The issue is not just whether the CFTC has authority,” one congressional aide familiar with the debate said. “It is whether the agency has the capacity to supervise a market that is moving into sports, politics, finance and culture at the same time.”
The tension between federal and state oversight
The hearing highlighted a basic tension in the current system. The CFTC views many prediction market contracts as derivatives that fall under federal commodities law. State regulators, particularly those responsible for gaming enforcement, see sports-related event contracts as gambling products that may violate local law if they are offered without the proper state licenses.
That conflict has become more visible as prediction platforms expand their offerings. In traditional derivatives markets, traders use contracts to manage risk tied to commodities, interest rates, currencies or financial assets. Prediction markets use a similar trading structure but apply it to the outcome of events, such as elections, economic data releases, court decisions or sports contests.
Supporters of prediction markets say event contracts can produce useful price signals by aggregating the beliefs of many traders. They argue that markets often react faster than polls, surveys or expert commentary. Critics counter that sports contracts and other event-based products can encourage speculative activity that looks more like gambling than hedging, especially when marketed to the general public.
The legal problem is that federal commodities law does not always provide a clean answer. The Commodity Exchange Act gives the CFTC power over derivatives markets, but it also includes public interest considerations and restrictions on certain types of event contracts. The agency has previously taken action against contracts it considered contrary to the public interest, including some tied to gaming, terrorism or assassination.
Sports contracts sit in a particularly sensitive category because states have built detailed regulatory systems around sports betting. Since the Supreme Court’s 2018 decision allowing states to legalize sports wagering, many states have licensed sportsbooks, imposed tax systems and created consumer protection rules. State officials worry that federally regulated prediction markets could bypass those systems, undercut local tax revenue and avoid state-level gambling safeguards.
The CFTC’s position, as described in recent legal disputes, is that states cannot override federally regulated derivatives markets when the products fall within the agency’s jurisdiction. Several states have pushed back, arguing that federal registration should not allow platforms to offer products that are effectively sports bets in states where those products do not comply with local gaming laws.
That disagreement may be heading toward a broader court battle unless Congress acts first. If courts side with the CFTC, federally registered prediction platforms could gain a stronger path to operate nationwide. If courts side with states, platforms may have to navigate a patchwork of state gaming laws, licenses and restrictions.
Risks and uncertainty for traders and platforms
For traders, the uncertainty creates practical risks. Platforms could face legal orders, emergency restrictions or operational changes if courts or regulators act suddenly. Funds held on platforms may also become harder to access during legal disputes, technical disruptions or compliance reviews. Market participants have increasingly discussed the risks of keeping large idle balances on any single platform, especially in a sector where rules are still being written.
Regulators are also looking at market integrity. Independent researchers have raised concerns about suspicious trading patterns and possible insider activity across some prediction networks. One estimate cited in recent policy discussions identified about $143 million in unusual profits that researchers linked to potential insider trading or privileged information. Those findings have added pressure on the CFTC to explain how it plans to police manipulation, conflicts of interest and information advantages in event-based markets.
Selig has responded to those concerns by favoring permanent rules over broad prohibitions. He has argued that a defined regulatory structure would be more effective than attempting to ban an industry that is already attracting large volumes and public attention. A rules-based approach could require stronger surveillance, clearer market standards, better disclosure practices and more direct enforcement tools.
The challenge is that enforcement in prediction markets can be unusually complex. In a traditional commodity market, manipulation may involve physical supply, delivery points, false reporting or concentrated positions. In event markets, suspicious activity may involve private information about a sports injury, a court ruling, a corporate decision, a political announcement or a government data release. Detecting that activity requires not only trading surveillance but also context about the underlying event.
The scale of the market is also growing quickly. Global trading volume across prediction tools reached nearly $64 billion last year, according to figures cited in the congressional discussion. Fresh market data from June 2026 showed monthly trading activity on the largest decentralized prediction venue reaching $13.3 billion. Those numbers suggest that prediction markets are no longer a niche experiment but an emerging part of the broader digital trading economy.
Budget pressures on the CFTC
That growth is one reason budget questions dominated part of the hearing. CFTC officials and some lawmakers have warned for years that the agency’s workload has increased faster than its funding. The CFTC oversees major derivatives markets used by farmers, energy companies, banks, hedge funds, asset managers and commercial firms. Adding rapidly growing retail-facing event markets to that workload could stretch staff further, particularly in technology, surveillance and enforcement units.
The SEC comparison added weight to the debate. Although the SEC’s requested budget is lower than in the prior cycle, it remains far larger than the CFTC’s request. The difference reflects the SEC’s broader jurisdiction over securities markets, public companies, broker-dealers and funds. But lawmakers noted that the CFTC’s smaller workforce may still be expected to oversee markets of enormous size and complexity.
Scott said Congress should be cautious about asking the CFTC to do more without giving it the resources to succeed. Underfunded oversight, he suggested, could create the appearance of regulation without the substance of enforcement.
Thompson took a more procedural approach, saying lawmakers first need to identify whether the gaps are legal, operational or budgetary. If the main issue is unclear authority, Congress may need to amend federal law. If the main issue is staffing, appropriators may need to provide more funding. If the issue is coordination between state and federal regulators, Congress may need to create a framework that defines how those regulators share responsibility.
The sports betting dimension
The sports component remains the most politically sensitive. Sports betting is now legal in many states, but it remains tightly regulated at the state level. Licensed sportsbooks pay taxes, follow responsible gaming requirements and operate under state-specific rules. Prediction markets, if treated purely as federally regulated derivatives platforms, could operate under a different model.
That possibility has alarmed some state regulators, who argue that federal financial law should not become a back door into sports gambling. Prediction market supporters respond that event contracts are traded in a market format and should not be treated the same as sportsbook wagers simply because the underlying event involves sports.
The distinction may be difficult to sustain in the eyes of the public. A contract that pays out if a team wins a game can look similar to a bet on that team, even if it is structured as a derivatives contract. That perception problem may drive Congress to act, especially if sports leagues, state governments or consumer protection groups increase pressure.
For now, the CFTC’s March rulemaking is the main federal process to watch. The agency is expected to receive comments from platforms, state regulators, sports betting interests, consumer groups, market structure specialists and traders. The final rules could shape what kinds of event contracts are allowed, how platforms must monitor activity, and whether certain categories, including sports, face special limits.
Still, agency rules may not be enough if courts continue to produce conflicting outcomes or if states refuse to accept the CFTC’s assertion of exclusive jurisdiction. Congress has the power to settle the question more directly, but lawmakers have not yet agreed on the right approach.
Prediction markets as a national policy issue
The hearing made clear that prediction markets now sit at the crossroads of finance, sports, technology and gambling law. Their rapid growth has created opportunities for traders who want exposure to event outcomes, but it has also created regulatory uncertainty that could affect platforms, state agencies and federal enforcement priorities.
Johnson said the unresolved burden should not fall entirely on judges or the CFTC. His comments captured the central message of the hearing: prediction markets have grown into a national policy issue, and Congress may soon have to decide whether existing law is strong enough to handle them.
For deeper context on federal oversight of digital assets, explore the possible future of crypto regulation in the US today.
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