The White House is reviewing two Commodity Futures Trading Commission proposals that could redraw the federal boundary around prediction markets, including contracts tied to sports, elections, entertainment and corporate events. The filings, submitted to the Office of Information and Regulatory Affairs, arrive as state regulators and federal courts are increasingly divided over whether event-based contracts are federally regulated swaps or gambling products subject to local law.
One CFTC proposal would expand the definition of a “swap” to expressly include event contracts. A second proposal would exclude “casino-style gambling products,” according to OIRA’s regulatory tracking website. Together, the measures could give the agency a more explicit legal framework for separating federally supervised prediction contracts from products it considers gambling.
That distinction has become urgent for platforms such as Kalshi and Polymarket, which have expanded far beyond political forecasting. Their markets now cover subjects ranging from company listings and entertainment contests to professional sports, placing products with very different legal histories under the same prediction-market umbrella.
Sports contracts have become the central dispute
Sports-related contracts are at the heart of the conflict. The CFTC has argued that prediction-market contracts, including many sports contracts, qualify as swaps and therefore fall within the agency’s authority under the Commodity Exchange Act.
States have challenged that position, arguing that platforms offering sports-event contracts may be operating gambling products without meeting state licensing, consumer-protection, age-verification and tax rules. State regulators have also objected to platforms offering contracts linked to sporting events that are already tightly regulated through state-authorized sportsbooks.
The legal question carries practical consequences for nationwide platforms. If federal law preempts state gambling laws, a federally regulated prediction market could potentially offer the same contract across multiple jurisdictions. If states retain authority, platforms may face a patchwork of restrictions, licensing demands and enforcement actions.
A recent appellate ruling involving Kalshi sharpened that uncertainty. According to the supplied account, a federal appeals court ruled that Ohio and Tennessee may enforce their sports-gambling laws against the platform, rejecting Kalshi’s argument that federal oversight of its contracts prevents state enforcement. The decision narrowed a platform-friendly view of federal preemption that had gained traction in some earlier litigation.
Differing lower-court decisions make further appeals likely. A Supreme Court case could eventually determine whether the Commodity Exchange Act displaces state gaming law when a federally regulated exchange lists contracts based on sporting outcomes.
OIRA review places the proposals near a crucial stage
OIRA, part of the White House Office of Management and Budget, reviews significant federal regulations before publication. Its involvement does not mean the proposals have been adopted, but it indicates that the CFTC is moving its policy approach through the executive-branch review process.
The listing for the casino-gambling proposal describes it as an “interim final rule.” Agencies use that route when they seek to put a rule into effect without completing the standard advance notice-and-comment process before implementation. The approach can accelerate a policy change, though it also tends to invite procedural challenges under the Administrative Procedure Act.
Daniel Wallach, a gaming and sports-betting lawyer, said on X that an interim final rule extending beyond an exclusion for casino-style products could draw immediate litigation if it appeared to endorse sports-event contracts. Courts reviewing such a rule would likely examine whether the CFTC had sufficient statutory authority and a valid reason to bypass ordinary rulemaking procedures.
The legal vulnerability is particularly acute because Congress has not enacted a statute tailored to modern prediction markets. The Commodity Exchange Act was written for derivatives markets, while state gambling laws were generally designed around sportsbooks, casinos, lotteries and other established forms of wagering. Event contracts now sit between those regimes, using regulated-exchange infrastructure to offer products that can closely resemble bets in the eyes of state officials.
A regulatory definition could reshape platform offerings
The proposed swap definition could give the CFTC a stronger basis for asserting jurisdiction over event contracts generally. Yet defining a contract as a swap would not automatically resolve every state-law dispute. Courts would still need to decide whether federal commodities law preempts particular state restrictions and whether individual products meet other statutory limits.
The proposed exclusion for casino-style gambling products may be just as consequential. Its language could determine whether the CFTC draws a clear line around traditional gambling formats or creates a narrower category that leaves room for certain sports and entertainment contracts. The final wording will matter more than the labels attached to the proposals.
Prediction-market operators have argued that their products serve price-discovery and information functions, allowing participants to express views on uncertain events through tradable contracts. State officials have countered that a contract paying out when a team wins or loses can function much like a sports wager regardless of the technology or market structure used to offer it.
That disagreement also affects blockchain-linked platforms and decentralized applications that facilitate event-based trading. A CFTC rule would primarily address the federal treatment of contracts within its jurisdiction; it would not by itself settle questions involving state gambling enforcement, platform design, custody arrangements or consumer access to offshore products.
The CFTC has also submitted separate crypto-related rulemaking to the White House, following a Senate procedural vote that blocked the Clarity Act, a bill intended to establish a broader federal framework for digital assets. With Congress stalled, agency rulemaking and court rulings are increasingly shaping the operating environment for crypto-adjacent financial products.
For prediction markets, the immediate contest is narrower but potentially defining: whether sports and other real-world event contracts can operate as federally regulated financial instruments, or whether state gaming authorities retain the power to treat them as local gambling activity.
Explore how evolving rules shape crypto prediction markets regulation and what traders should watch next.
Disclaimer: The content on this page is provided for general informational purposes only and does not represent the views or financial advice of Toobit. We make no guarantees regarding the accuracy or completeness of this information and shall not be held liable for any errors, omissions, or outcomes resulting from its use. Investing in digital assets involves risk; users should independently evaluate their financial situation and the risks involved. For further details, please consult our Terms of Service and Risk Disclosure.
