White House weighs new CFTC event contract rules in growing prediction market power struggle

This week, the White House is weighing two proposed rules from the Commodity Futures Trading Commission tied to prediction markets as the agency seeks to assert its jurisdiction, despite pushback from states. 

The CFTC filed two proposals with the White House's Office of Information and Regulatory Affairs (OIRA), a division within the Office of Management and Budget that reviews federal regulations before publication, to "further" the definition of swap to include event contracts and to "exclude casino-style gambling products."

Prediction markets like Polymarket and Kalshi are now valued at tens of billions of dollars each and allow people to place bets on a slew of events, from which companies will go public to who will get second place on the television show Dancing with the Stars.

They also offer bets on sports, which has become a major contention playing out in the court system around whether they meet the legal definition of a "swap." The CFTC has argued that most contracts on prediction markets, including those involving sports, are swaps, and therefore fall under its federal jurisdiction. 

However, states say those platforms are operating illegally in their locales, violate gambling laws, criticize the age limits and say they are avoiding paying taxes. Multiple states have brought lawsuits against certain platforms, but the CFTC has fired back and has also filed countersuits to block state oversight over prediction markets. 

Last week, Kalshi lost an appeal after a federal appeals court ruled that Ohio and Tennessee can enforce their sports gambling laws against the platform, rejecting its argument that federal law shields its sports contracts and so should be regulated by the CFTC. 

The issue could be headed to the Supreme Court. Earlier this month, New Jersey Attorney General Jennifer Davenport asked the high court to review the issue as courts have taken different stances over the past year. 

'Interim final rule stage'

The rule around casino gambling products is at an "interim final rule" stage, according to the OIRA site. 

Gaming and sports betting lawyer Daniel Wallach said that rule, once released, would go into effect immediately and so would not go out for the usual notice and comment. That could leave it open for future court intervention, Wallach said, given the Administrative Procedure Act, which governs how federal agencies propose rules.

"If the interim rule goes beyond the title’s suggestion (e.g., excluding casino-style products) and provides tacit authorization for sports-event contracts, it could prompt immediate APA litigation in federal court," Wallach said in a post on X on Wednesday. 

Last week, the CFTC filed crypto rulemaking with the White House as well. This comes as regulators are moving full steam ahead after the Clarity Act — a sweeping bill that would have comprehensively regulated the digital asset industry at the federal level for the first time — failed in the Senate during a procedural vote earlier this month.