By Bill Alpert

When the Denver Broncos played the Cincinnati Bengals in September, prediction market Kalshi let you bet on whether Broncos quarterback Bo Nix and wide receiver Courtland Sutton would score touchdowns.

Billions are riding on such sports event contracts, and it isn't just the wagers of individual betters. Private market values for Kalshi and its rival Polymarket have soared, while the traditional online sports bookmakers DraftKings and Flutter Entertainment have lost 40% of their market caps. With sports event contracts online everywhere, a bipartisan group of 34 state attorneys general told a court that the prediction markets' bypass of state gambling control threatens their citizens.

By letting sports event markets loose nationwide, the Trump administration has brought online betting where it isn't legal -- such as Texas, California, Georgia and Utah -- while threatening $14 billion in tax revenue in states where it is regulated, say the states.

This playoff turns on two questions within the compass of the U.S. Commodity Futures Trading Commission, the federal agency tasked with prediction markets. Are listed sports contracts, like the Broncos proposition, a kind of swap used to hedge events of financial, commercial or economic consequence? And do they involve "gaming" that's against the public interest?

In dozens of courtrooms, prediction marketers and states are clashing over those tests that the CFTC proctors. So far, the CFTC has remained on the sidelines and says it has no view on the matters.

That surprises Robert A. Schwartz, a partner at the Washington, D.C., office of MorganLewis who was the CFTC's general counsel until the Trump administration took over in January.

"When I was at the CFTC, on multiple occasions when a court would consider an issue under the Commodity Exchange Act or a CFTC regulation -- and the CFTC wasn't involved in the case -- the court would ask us to weigh in with an amicus brief or, if the issue were sufficiently important, we would get involved on our own initiative," Schwartz told Barron's. "That hasn't happened here."

Things are different now. The Trump White House has nominated sports prediction market boosters to head the CFTC, and has a laissez-faire approach to the proliferating sports event markets.

In early February, the CFTC said that within 45 days it would hold a public roundtable to help develop "a holistic regulatory framework" on sports-related event contracts. Comments poured in from states, tribes, gaming interests and pro sports leagues. The roundtable didn't happen.

Barron's queried CFTC officials and its sole commissioner, Acting Chair Caroline Pham, but was unable to find out what happened to the sports event initiative. The agency's email accounts replied that it was prioritizing contacts concerning risk to life or property during the government shutdown.

Since January, the agency has let Kalshi, Crypto.com, and other prediction marketers list dozens of sports propositions -- ringing up more than $1 billion in volume. Prediction marketers tell courts that the CFTC's lack of objections connotes tacit approval.

"Kalshi's contracts are swaps subject to the CFTC's sole jurisdiction," Kalshi spokesman Jack Such told Barron's. "Congress defined swaps to include event contracts like those Kalshi offers. In keeping with that definition, the CFTC has allowed Kalshi's sports contracts for nearly a year without ever so much as hinting that they aren't swaps."

The CFTC has also approved new sports contract markets from Polymarket, PrizePicks, and Underdog -- each time stipulating that it takes no view on their legality under agency law.

Yet the agency seems to be making some distinctions. A lawsuit by Sleeper Markets in Washington, D.C.'s federal district court alleges that the CFTC refused Sleeper's event market application, with no explanation.

In the CFTC's last public statement before the shutdown, a staff advisory on Sept. 30 acknowledged the agency's power to prohibit certain 'gaming' contracts, under a rule adopted in 2011 to "prevent derivatives contracts that are contrary to the public interest because they exist predominantly to enable gambling through supposed event contracts."

The letter went on to say the agency hasn't made its mind up.

"The Commission has not, to date, been requested to take or taken any official action to approve the listing for trading of sports-related event contracts," it said. "The Commission has not, to date, made a determination regarding whether any such contracts involve an activity enumerated or prohibited."

On the same day as the agency's staff advisory, a bipartisan group of seven U.S. Senators wrote to the agency and demanded the CFTC answer nearly a dozen questions about the sports contracts, by Oct. 30. The group included Democrat Catherine Cortez Masto from Nevada, where gambling has been regulated for a century, and Republican John Curtis from Utah, where gambling is banned.

"The [CFTC] is implicitly permitting sports gaming products that are regulated by states and tribes," said the senators' letter. They noted that the 2011 Dodd Frank law gave the CFTC the authority to determine which event contracts could be prohibited if the agency determines the event contract to be gaming.

Prediction markets also have lined up supporters. In January, President Donald Trump's son, Don Jr., joined Kalshi as a strategic advisor. In August, he did the same for Polymarket -- where he also made a strategic investment from his venture-capital firm, 1789 Capital. The venture-capital firm didn't immediately respond to a query.

Last week, Trump Media & Technology Group said it would introduce prediction markets on its social-media platform Truth Social, through a partnership with Crypto.com.

The White House said the administration's regulation of sports event contracts was free of conflicts.

"The media's continued attempts to fabricate conflicts of interest are irresponsible and reinforce the public's distrust in what they read," said White House spokesperson Karoline Leavitt, in a statement. "Neither the President nor his family have ever engaged, or will ever engage, in conflicts of interest."

President Trump's original choice for the CFTC chairmanship, Brian Quintenz, was a Kalshi board member. His current nominee, Mike Selig, once urged the CFTC to allow sports event contracts, when he worked as a lawyer for venture funds.

Meanwhile, the pretrial rulings of federal district courts have reached contradictory conclusions on the bona fides of sports event contracts. Most parties expect the questions will be settled by the U.S. Supreme Court.

As Kalshi has seen sports events swell above 80% of its prediction market volume, its own arguments have evolved.

In 2024, Kalshi urged a federal court to allow contracts on elections, arguing that the "gaming" prohibition in CFTC rules referred to "playing games, like roulette or the slots, or betting on the outcome of games, such as the Super Bowl."

This year, Super Bowl contracts became some of Kalshi's biggest moneymakers. At a September hearing before the U.S. Court of Appeals for the Third Circuit, a Kalshi lawyer conceded that federal law might bar some kinds of sports propositions, but not any of the sports contracts that Kalshi has listed on its prediction market.

Advocates for the state-regulated online sports betting industry are similarly adamant on how the CFTC rules apply.

"Why -- nine months into Kalshi sports contracts -- has the CFTC not been able to determine that sports gambling is 'gaming'?" asks Dan Wallach, a Florida-based attorney who advised several state legislatures on sports betting. "Every gaming lawyer on earth knows that. Every nongaming lawyer should know that."

Prediction marketers, states, tribes, bookmakers, gambling addiction agencies, and judges will continue to guess what the CFTC's silence means.

Kalshi tells Barron's that it will continue to follow the CFTC's lead.

"We just know we have to follow whatever they say," Kalshi spokesman Such said, of the agency.

Write to Bill Alpert at william.alpert@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

November 06, 2025 02:30 ET (07:30 GMT)

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