US courts are split on whether sports prediction markets are legal, with one federal appeals court backing operator Kalshi even as state courts and lawmakers push back elsewhere. Former CFTC chair Gary Gensler has intervened against the industry, while President Trump backs the CFTC’s authority.
Every prediction market deal signed with a professional league this year carries a void clause: the contract dissolves if the courts decide the product is illegal. Of course, many contracts carry such terms in boilerplate, but here they might as well have been set in moveable type, with the other substantive stuff.
Courts around the US have this matter before them right now, and their answers reveal a split. Prediction markets are here, have roared into the market for sport, but whether they’re here to stay nobody knows.
In April the Third Circuit ruled that New Jersey may not regulate Kalshi’s sports contracts, finding the Commodity Futures Trading Commission (CFTC) holds exclusive jurisdiction. It was a victory for the industry, decided two to one, the dissenting judge calling Kalshi’s product “virtually indistinguishable” from that of a sportsbook.
In March, though, a district judge in Ohio denied Kalshi’s bid to block a cease-and-desist order from the state, and the appeal is now before the Sixth Circuit on an expedited schedule.
Nevada and Massachusetts have each handed the state side a preliminary injunction. The Massachusetts ruling is currently stayed on appeal.
Minnesota went further still and made it a felony to operate a prediction market in the state from Aug. 1.
Entering the fray is Gary Gensler, who as Chairman of the Securities and Exchange Commission (SEC) under the Biden administration was a thorn in the side of crypto exchanges. Earlier in his career (2009-14) Gensler was Chairman of the CFTC. Last month he emerged from private life to file an amicus brief in the Ohio case arguing, against Kalshi, that his former agency is mistaken on the law.
Gensler helped negotiate the Dodd-Frank Act (2010), an attempt to clarify the regulatory ambiguities on swaps that, some argue, helped bring about the financial crisis of 2008. He also wrote the rule (2011) to exclude gaming from CFTC-approved contracts.
His argument now is that Congress built Dodd-Frank to police a $165 billion derivatives crisis, not to hand a small commodities regulator control of sports betting nationwide. “Nobody said… we should give your small agency… authority to regulate sports betting,” he told CNBC ahead of filing.
President Trump – with whose most recent election Gensler resigned from the SEC – has taken the opposite side, just as publicly. In May he posted that “it is critically important that the CFTC’s exclusive authority over Prediction Markets is maintained,” and used the same post to name four obstructing state officials, one of them a Republican. As the circuit split already suggests, the battle is not being waged along party lines. If anything, the battle line predates the parties and harks back to the days of the Founding, when established and wary states sought to check the powers of a novel federal government. In any case, the battle is far from over.
Kentucky has achieved the closest thing to a victory for states’ rights, as it were. Its legislators have enacted a 14.25 percent excise tax on prediction market transaction fees and barred any sportsbook or fantasy-sports operator licensed in the state from doing business with a prediction market anywhere in the country. In doing so it has overridden the governor’s veto on two bills.
A coalition of operators is suing to block the tax before it enters into force, next Jan. 1, and the partnership ban is already live. Any brand with exclusivity or data agreements running through a licensed sportsbook partner should watch that case, because it presages action elsewhere.
The CFTC is trying to settle part of this by rule rather than wait for courts. Its proposal of June 10 would allow contracts on final scores and season statistics but ban contracts tied to a single play, an injury or an officiating call. The period for public comment closes on July 27.
Through it all CFTC Chairman Michael Selig is proceeding with no commission behind him, every other CFTC seat having been vacant since 2025. This opens the way for a challenge to the rule on the grounds that quorum has not been met. Sports leagues negotiating exclusivity are negotiating with a regulator whose authority to finish the job is under fire from several directions.
The Supreme Court could take up the underlying question but is not expected to do so before 2027 or 2028.
Leagues signing deals, then, are hoping or assuming that prediction markets will survive. They are betting not just on the popularity and profitability of their product but also on the composition and tenor of federal courts in the US.
Gensler’s argument
- Dodd-Frank’s swap definition was built to police the instruments behind the 2008 crisis, not to hand a commodities regulator control of sports betting.
- The swap definition’s language focuses on hedging economic risk; a bet on a game outcome provides no hedge for either party.
- The only mention of sports betting during the Dodd-Frank debate was a floor exchange between Senators Lincoln and Feinstein, agreeing the law was meant to let the CFTC prevent gambling through futures markets, not authorize it nationwide.
- In keeping with the so-called “major questions doctrine,” courts require clear congressional authorization for an agency to claim broad power on the basis of ambiguous law. As the late Supreme Court Justice Antonin Scalia wrote, Congress does not “hide elephants in mouseholes.”
- The CFTC has neither the staff nor the funds to regulate a betting market. The SEC’s staff outnumbers the CFTC’s roughly six to one.
- Age verification, addiction support and the funding of programs to deal with gambling addiction already sit with the states, and federal preemption would displace them without replacing them.
In short: The CFTC is applying a statute from the financial-crisis era onto an activity it was never built for, and doing so as an agency with neither the staff nor the mandate to police it. Moreover, if Congress had meant to hand federal regulators nationwide authority over sports betting it would have said so, not left it for someone to find 15 years later in a definition.
Nota bene: Gensler himself wrote the CFTC’s rule (2011) to exclude gaming from approved contracts. He is defending his own line, not taking a new position.
A few counterarguments
- The statutory definition of swaps seems not to require that they serve as hedges. Rather, it turns on whether payment depends on a future contingent event. Much of the activity in credit-default swaps before 2008 was speculation, not hedging.
- The major questions doctrine treats congressional silence as evidence against agency authority, but silence can result from lack of foresight.
- The CFTC’s proposal of June 10 argues that sports contracts serve for price-discovery and information-aggregation. This is one rationale for financial markets in general.
- A lack of funds or staff is an administrative problem, not a jurisdictional one. Congress could vote to provide whatever is needed.
- There are securities-trading addicts just as there are gambling addicts. If the rise of addicts is the criterion, then the stock exchange is a casino. And if a rise in addicts justifies state primacy, then there should be 50 SECs, one per state, each with final authority.
