The U.S. Commodity Futures Trading Commission (CFTC) has proposed new rules for prediction markets, signaling that sporting event contracts are generally not contrary to the public interest, even if federal law classifies them as “gaming.”
Released Wednesday, proposal distinguishes sporting event contracts from games of pure chance, arguing that markets based on final scores and win-loss records can facilitate price discovery. However, contracts linked to player injuries, referee decisions or other outcomes that could encourage manipulation are unlikely to meet the public interest test.
The proposal also clarifies that election contracts are not considered “gaming” under relevant federal laws. Reuters reported This could further ease regulatory uncertainty for platforms such as Kalshi and Polymarket, which rose to prominence during the 2024 US presidential election, as traders increasingly turned to prediction markets to gauge the outcome of the race.
The draft rules are open for public comment for 45 days and could help define the future regulatory framework for U.S. prediction markets.
Gary Kalbaugh, a partner at Cahill Gordon & Reindel LLP in New York, said the proposal was based on principles rather than blanket approval, noting that each contract would still be subject to a case-by-case public interest analysis.
“Gaming is defined more broadly than expected and extends to sporting events,” Kalbaugh wrote Wednesday. “Contracts relating to overall results (final scores, wins-loss, season statistics) are presumed authorized.”
Source: Gary Kalbaugh
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Clearer regulation comes as prediction markets see adoption increase
The proposed rules come as prediction markets – described as an “asset class” in the draft – continue to gain momentum, with Kalshi and Polymarket reaching multi-billion dollar valuations amid growing investor and institutional interest.
Both companies have expanded their ties to traditional financial markets. Kalshi recently partnered with Nasdaq to launch a new category of prediction markets that allows users to forecast the future valuations of private companies before they go public.
Polymarket, meanwhile, has partnered with Dow Jones to integrate real-time prediction market data into its media brands, including the Wall Street Journal.
“Prediction markets continue to become more and more common, with new partnerships forming with news organizations and more companies quickly moving into this space. » said Melinda Roth, professor of sports law and corporate finance at Georgetown University Law Center. “As these markets continue to grow, the unanswered question is whether event contracts are financial instruments or simply gambling.”
Bernstein analysts say prediction markets see growing institutional adoption as investors seek alternative macro-hedging tools via binary outcome contracts.
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