U.S. prediction market dispute widens as Gensler backs state sports betting rules

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U.S. prediction market dispute

Highlights

Gary Gensler filed an amicus brief with the Sixth Circuit arguing the CFTC lacks statutory authority over sports betting contracts, supporting state regulation.
States risk losing substantial tax revenue and imposing state-by-state compliance if federal regulators prevail, while prediction market operators face legal uncertainty across conflicting appeals court rulings.
The CFTC maintains that event contracts are swaps subject to its oversight, but Gensler and industry groups argue sports prediction markets closely resemble traditional sports betting and impact tribal gaming rights.

Appeals case sharpens regulatory divide

As reported by CoinDesk, former SEC and CFTC Chair Gary Gensler has filed an amicus brief with the Sixth Circuit Court of Appeals arguing that federal law does not give the Commodity Futures Trading Commission authority over sports-related prediction markets that he says fall under state gaming rules.

Gensler joins the Indian Gaming Association, Native American tribal groups, the American Gaming Association and Better Markets in urging the appeals court to find that Kalshi's sports event contracts violate state gambling regulations. The case stems from Kalshi's lawsuit against Ohio seeking to prevent the state from suing the company, after a federal judge ruled against Kalshi in March.

In the filing, Gensler argues that Congress gave the CFTC authority over specific derivatives products under the Commodity Exchange Act and Dodd-Frank, but did not include sports betting contracts in the statutory definition of swaps. His brief says swaps are tied to hedging economic risk, while sports bets rarely, if ever, serve that purpose.

The issue is becoming a wider judicial contest across the U.S., where courts are weighing whether sports event contracts are federally regulated financial instruments or sports gambling presented as a new market product. Some states are suing prediction market providers for operating without gambling registrations, while the CFTC and some companies are pressing courts to recognize federal oversight instead.

State revenue and tribal rights at stake

If federal regulators ultimately prevail, states could lose substantial tax revenue tied to sports betting oversight. If states win, prediction market companies would need to register and comply with rules in each jurisdiction where they operate, and could face penalties in places that bar unregistered platforms.

Courts remain split on the issue. The Third Circuit ruled in April that New Jersey could not shut down prediction markets, while proceedings in the Ninth Circuit appear more favorable to state arguments, increasing the chances that the U.S. Supreme Court may eventually take up the matter.

The CFTC, now led by Chair Mike Selig, filed its own amicus brief last month saying that any event contract traded on a designated contract market under its supervision qualifies as a swap. Gensler's filing rejects that position, saying the regulator is advancing hedging theories for sports bets that are only weakly connected to genuine commercial risk management.

Other briefs focus on separate legal and economic concerns. Tribal organizations argue that sports-related prediction markets encroach on sovereign gaming rights because gaming on Native lands must benefit tribes rather than private companies, while the American Gaming Association argues there is no meaningful distinction between sports prediction markets and conventional sports betting. Better Markets also says sports-related contracts should not be treated as swaps, citing past Kalshi filings that distinguished sporting events from political event markets.

In our earlier coverage, we examined the U.S. Justice Department’s lawsuit against Virginia over state rules that restrict masked federal officers and require individual identification. We noted DOJ’s argument that the measures are unconstitutional, interfere with federal operations and 287(g) cooperation, and increase risks such as harassment and doxing.

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