CFTC Seeks New Event Contract Definitions to Combat State Gambling Claims

A significant regulatory battle is unfolding in the United States as the Commodity Futures Trading Commission (CFTC) moves to cement its authority over prediction markets. Chairman Mike Selig is spearheading a regulatory push to redefine event contracts as financial swaps. This classification is intended to protect these markets from being categorized as illegal gambling by individual states. The move comes at a time when platforms like Kalshi and Polymarket are seeing explosive growth, drawing the ire of state regulators who believe these services fall under their gambling oversight.

The agency has submitted two key regulatory plans for review by the White House Office of Management and Budget (OMB). One proposal aims to formally include event contracts within the legal definition of swaps, while the other seeks to clarify that these instruments are not connected to casino-style gambling. This positioning is a strategic move to undermine lawsuits from states that accuse prediction market companies of operating illegal gambling platforms. The legal rift is significant, with federal appellate courts issuing conflicting rulings on whether the CFTC has proper jurisdiction over these products.

Numbers and facts

The CFTC filed its regulatory requests with the OMB on September 28, 2026. These filings include a new rule to extend the definition of swaps to event contracts and an interim final rule to remove gambling products from the swap category. Currently, Chairman Mike Selig is acting unilaterally because President Donald Trump has not yet nominated the other four members of the commission. This unique situation allows Selig to drive policy without the usual internal deliberation of a full five-member board.

Prediction markets typically involve binary bets on measurable outcomes, such as election results or weather events. These contracts usually have a fixed payout of $1. For example, a trader might buy a yes position for 70 cents on a contract asking if it will rain. If it rains, the trader receives the $1 payout, netting a 30-cent profit. The CFTC argues these are tools for hedging economic risk, while states often view them as pure speculation. The history of these markets dates back to the Iowa Presidential Stock Market in 1988, with the CFTC first approving a regulated exchange, HedgeStreet, in 2004.

Background

The tension between federal and state regulators has reached a boiling point due to the increasing complexity of event contracts. Recent court decisions highlight the confusion: the Sixth and Eighth Circuit Courts of Appeals ruled that sports-tied contracts on Kalshi are not swaps and should be subject to state gambling laws. However, the Third Circuit previously decided that the CFTC does have jurisdiction. This legal instability suggests that the U.S. Supreme Court may eventually need to provide a definitive ruling.

Chairman Mike Selig has been vocal about the agency's mission:

"The CFTC has embarked on a campaign to regulate prediction markets such as Kalshi and defend against legal pushback from states insisting they have the power to oversee certain contracts as gambling." - Mike Selig, CFTC Chairman

Why it matters for German players

For players in Germany, this U.S. regulatory struggle serves as a cautionary tale regarding the definition of legal gaming. In Germany, the GlüStV 2021 provides a very clear, albeit restrictive, framework. Prediction markets that operate without a GGL license are considered illegal in Germany. While the U.S. debate centers on whether these are financial instruments or gambling, the German GGL would likely classify any event-based betting as gambling requiring a strict local license. German users should be aware that participating in platforms like Polymarket or Kalshi from Germany is not protected by local laws and could lead to legal issues, as these platforms do not adhere to the 1,000 Euro monthly deposit limit or the LUGAS monitoring system.

What it means for GGL-licensed casinos

Licensed operators in Germany benefit from a clear legal environment but face stiff competition from offshore and unregulated crypto-based prediction markets. The CFTC's attempt to legitimize these markets as financial swaps could embolden international platforms to seek similar loopholes in Europe. However, the GGL remains committed to the 1 Euro spin limit for slots and rigorous player protection standards. For GGL-licensed casinos, the situation in the U.S. underscores the importance of a unified regulatory front to prevent the erosion of gambling tax revenue and consumer safety by platforms that claim to be financial services while offering gambling-like experiences.

Additional sources: [katten.com, cftc.gov]