CFTC Excludes Sportsbook Wagers From Swaps While Proposing Federal Treatment for Event Contracts

Meta description: CFTC excluded sportsbook wagers from swaps and proposed federal swap treatment for event contracts as Supreme Court petitions stack up.

Tags: CFTC, Kalshi, Supreme Court, Event Contracts, Sports Betting

Market platform: none-if-cross-platform

Category: Regulation

The Commodity Futures Trading Commission on Oct. 9 issued two linked but legally different actions: an interim final rule excluding sportsbook wagers and casino games from the swap definition, and a separate proposed rule that would expressly include event contracts on sports, politics, culture and weather within that definition. The first action is set to take effect on Federal Register publication. The second remains open for public comment.

The distinction matters because the CFTC is not saying every prediction-market contract is already protected from state gambling law by the new rule. It is saying casino-style gambling products are outside its swaps jurisdiction now, while asking for comment on a rule that would codify the agency’s view that exchange-traded event contracts are commodity derivatives under the Commodity Exchange Act.

What did the CFTC adopt on Oct. 9?

The adopted action is the interim final rule excluding certain gambling products from the definition of a swap. In Release No. 9309-26, the CFTC said the rule codifies its position that “casino-style gambling products,” including sportsbook wagers and casino games, are not swaps.

CFTC Chairman Michael S. Selig framed the rule as a boundary-setting measure, saying “casino-style gambling products are not derivatives.” The release says the interim final rule will become effective immediately upon publication in the Federal Register, with written comments due through Regulations.gov within 30 days of that publication.

That rule gives state and tribal gambling regulators the clearest part of the CFTC’s Oct. 9 package. A wager placed with a licensed sportsbook or casino is not being pulled into federal swaps regulation simply because it depends on an uncertain future event. The CFTC is drawing a regulatory line around products historically treated as gambling, not asserting authority over the sportsbook and casino business.

What did the CFTC only propose?

The second action is a notice of proposed rulemaking, not a final rule. In Release No. 9310-26, the CFTC said the proposal would further define “swap” to include event contracts, including contracts based on sports, politics, cultural events and weather.

Selig said in that release that Americans use event contracts to “hedge risks, speculate” and generate information about future events. He also said the products fall within the CFTC’s regulatory remit and exclusive jurisdiction under the Commodity Exchange Act. Because the measure is still a proposal, that statement is the agency’s position in a rulemaking, not a completed change in federal law.

Comments on the proposed rule are due within 30 days of its Federal Register publication, according to the CFTC. Until the agency adopts a final rule, the proposal does not itself settle the pending court fights over whether sports event contracts listed on designated contract markets are swaps or whether state gambling laws are preempted.

Where is the line between a sportsbook wager and an event contract?

The CFTC’s Oct. 9 package draws the line around the product’s regulatory setting. A sports wager or casino game offered through a licensed gambling operator is treated as outside the swap definition. An event contract listed for trading on a CFTC-regulated market is the subject of the agency’s proposed swap rule.

That difference is central to litigation around Kalshi, Crypto.com Derivatives North America, Robinhood Derivatives and other event-contract businesses. States argue that sports contracts on prediction markets function like sports bets and should remain subject to state gambling licensing, taxes and consumer-protection rules. Prediction-market operators argue that contracts traded on federally regulated derivatives markets fall within the CFTC’s exclusive jurisdiction.

The CFTC’s approach tries to preserve both positions in separate regulatory lanes: traditional gambling products remain outside swaps regulation, while exchange-listed event contracts would be expressly treated as swaps if the proposal is finalized. Courts have not uniformly accepted that distinction.

How have the courts split on Kalshi’s sports contracts?

The U.S. Court of Appeals for the Third Circuit sided with Kalshi on April 6 in KalshiEX LLC v. Flaherty, No. 25-1922. The court affirmed a preliminary injunction against New Jersey officials and held that Kalshi had shown a reasonable chance of success on its argument that the Commodity Exchange Act preempts New Jersey gambling law as applied to sports-related event contracts traded on a CFTC-licensed designated contract market.

The Ninth Circuit went the other way on Aug. 28 in KalshiEX LLC v. Assad, No. 25-7516. The panel rejected Kalshi’s broad reading of the swap definition and said the Commodity Exchange Act could not be read as turning the CFTC into a national sports-gambling regulator without clearer congressional authorization.

The Sixth Circuit added another state-side ruling on Sept. 25 in KalshiEX LLC v. Schuler, Nos. 26-3196 and 26-5235. It held that Kalshi had not shown its sports-event contracts met the statutory swap definition and, even if they did, that the Commodity Exchange Act did not preempt Ohio’s or Tennessee’s gambling laws. The court affirmed the denial of an injunction in Ohio, vacated an injunction in Tennessee and remanded the Tennessee case.

What is pending at the Supreme Court?

New Jersey has asked the Supreme Court to review the Third Circuit’s decision. The Court’s docket in Flaherty v. KalshiEX, No. 26-299, shows the petition was filed on Sept. 2 and docketed on Sept. 8. Kalshi’s response is due Nov. 9 after the Court granted an extension.

The docket also shows a heavy amicus lineup. Ohio, 38 other states and the District of Columbia filed a brief supporting New Jersey, according to the states’ Supreme Court brief. The National Football League submitted an amicus brief on Oct. 8, as did 145 Indian tribes and tribal organizations, former CFTC Chairman Gary Gensler and former Senator Christopher J. Dodd, according to the Supreme Court docket.

The Kalshi petition is not the only sports-event-contract dispute already before the justices. Robinhood Derivatives, LLC v. Dreitzer, No. 26-338, was docketed on Sept. 14, and North American Derivatives Exchange, Inc. d/b/a Crypto.com | Derivatives North America v. Nevada, No. 26-344, was docketed on Sept. 15. Together, the petitions put the Court in position to decide whether, when and through which case it wants to address the state-federal fight over CFTC-regulated event contracts.

Who is most affected by the CFTC’s two-track move?

For state gambling regulators and sportsbook incumbents, the interim final rule is a reassurance that the CFTC is not claiming ordinary sportsbook wagers, casino games, lotteries or similar products as swaps. That is the easier side of the Oct. 9 action because the agency has already adopted the exclusion.

For prediction-market exchanges, the proposed rule is potentially more important but less final. A completed rule defining covered event contracts as swaps would give platforms a stronger federal regulatory argument in future disputes, but it would not erase adverse appellate rulings by itself. Courts still decide statutory preemption questions, and the Sixth and Ninth Circuits have already rejected key parts of Kalshi’s theory in preliminary-injunction appeals.

The next fixed milestone is Kalshi’s Nov. 9 response deadline in Flaherty v. KalshiEX. Separately, the CFTC’s two 30-day comment periods will run from Federal Register publication, giving states, exchanges, sportsbooks, tribes, leagues and market participants a formal record on where the federal line should be drawn.