Regulating Prediction Markets
CFTC Proposes Rules to Permit Most Sports Prediction Markets, Curbing Risky Bets
Key Points
The CFTC’s proposed approach is described as a shift from how its lawyers argued before an appellate court in March, with the new rules allowing the agency to potentially ban only a subset of sports-event contracts while permitting others.
The CFTC’s draft also tackles definitional ambiguity by offering a definition of “involve,” clarifying it refers to the underlying event being bet on (not the act of trading). The article notes this is meant to prevent a scenario where contracts about assassination, war, or terrorism would be treated as “gaming” merely because they are traded.
The draft appears aimed at banning a narrower set of sports contracts than some feared—particularly wagers on injuries and “next-pitch” outcomes—while noting that state gambling regulators already prohibit such markets in many jurisdictions.
Attorney Gary Kalbaugh said sports markets settling on aggregate outcomes such as final scores, win-loss records, and season statistics would be “presumptively permissible,” though each market would still undergo its own public-interest assessment.
The article connects the regulatory proposal to platform expansion: Kalshi recently partnered with Nasdaq to launch prediction markets tied to private company valuations ahead of IPOs, and Polymarket signed an agreement with Dow Jones to integrate prediction-market data into media brands including The Wall Street Journal.
The U.S. Commodity Futures Trading Commission issued a 267-page proposed rule on June 10, 2026, that would create the first formal framework for the prediction markets industry — an industry that hit $29.8 billion in trading volume in April 2026 alone, according to TS Imagine. The proposal opens a 45-day public comment period and signals that most sports contracts tied to final scores or win-loss records would be allowed to trade.
The draft marks a sharp turn from the CFTC's prior stance. As recently as March 2026, the agency's lawyers argued in court for broad restrictions on event contracts. Now the agency is drawing a much narrower line — banning only contracts it sees as manipulation risks, while letting legitimate markets move forward, CFTC Chairman Michael S. Selig said.
Sports Contracts Get a Green Light, With Limits
Under the proposal, contracts that settle on aggregate, verifiable outcomes — final scores, win-loss records, season statistics — would be "presumptively permissible," according to attorney Gary Kalbaugh of Cahill Gordon & Reindel. Each contract would still go through a public-interest review, but the bar would be lower for clear, objective outcomes that are hard to manipulate.
The CFTC drew a hard line against a different class of contracts. Micro-bets tied to injuries, next-pitch outcomes, or officiating calls would likely face a ban. The agency said those contracts are prone to manipulation and that state gambling regulators already prohibit many of them. The Currency Analytics noted the proposal targets contracts where "unethical conduct" could influence the outcome.
Election Contracts Are Not Gambling, CFTC Says
One of the proposal's biggest clarifications involves election markets. The draft explicitly says elections are "contests," not "gaming" under the Commodity Exchange Act. Elections select political leadership — they don't turn on a participant's luck or athletic skill — so they fall outside the "gaming" ban, the CFTC concluded. That distinction matters enormously for platforms like Kalshi and Polymarket.
The draft also defines what the word "involve" means in the law. It refers to the underlying event being traded on — not the act of trading itself. That prevents a legal loophole where contracts about war or terrorism could be called "gaming" simply because money changes hands. Contracts on assassination, war, and terrorism remain prohibited under the proposal, Grafa reported.
Kalshi and Polymarket Push Into Mainstream Finance
The two largest U.S. prediction market platforms are already moving fast. Kalshi closed a $1 billion Series F in May 2026 at a $22 billion valuation, according to MEXC. The company also partnered with Nasdaq Private Market to launch contracts tied to private company valuations ahead of IPOs — think SpaceX or OpenAI share prices before they list publicly.
Polymarket took a different path into the mainstream. In January 2026 it signed a deal with Dow Jones to feed prediction-market data into The Wall Street Journal and Barron's. CEO Shayne Coplan called it a "standard for accessible, data-driven information." Polymarket's valuation reached an estimated $15 billion after a $600 million investment from ICE, Odaily reported.
States and Critics Push Back Hard on Federal Rules
Not everyone is celebrating. Thirty-eight state attorneys general have raised concerns that federal preemption of gambling laws will cut into state tax revenues and weaken consumer protections, according to TS Imagine. Senator Martin Heinrich (D-NM) urged the CFTC to stay out of ongoing state litigation, arguing that permissive federal rules undermine "respect for state law and tribal sovereignty."
Minnesota and Wisconsin have pursued or passed their own bans on prediction markets, arguing that the 10th Amendment gives states authority over gambling. The 45-day comment window gives critics a formal channel to push back. The number of listed event contracts has already grown from 220 in 2021 to over 8,000 in May 2026, MEXC reported — a sign the industry will not wait for the debate to settle.
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