This article was originally published in Law360 on June 25, 2025, and is republished here with permission.

What is gaming? In recent months, this has been the question at the intersection of the investing and betting industries. On Sept. 6, 2024, in the KalshiEX LLC v. Commodity Futures Trading Commission decision, the U.S. District Court for the District of Columbia weighed in, ruling that predicting the winner of a political election does not fall within the scope of “gaming,” as the term is defined in the Commodity Exchange Act.

This decision opened the floodgates. Companies began pushing the envelope almost immediately. Commodities markets, which were once limited to traditional instruments to hedge financial risk, found themselves full of opportunities for the public to wager on the outcome of almost anything.

But is there a line that commodities contracts cannot cross? If the public can use these contracts to wager on the winner of a political contest, what is stopping companies from offering similar contracts relating to the outcome of sporting events?

This article will discuss the relevant regulatory landscape, recent actions to offer sporting event contracts, state and federal regulatory responses, and — most importantly — whether the sports betting industry is in the midst of a fundamental change.

What Are Event Contracts, and How Are They Regulated?

Financial derivatives are investment products commonly listed on exchanges regulated by the Commodity Futures Trading Commission.

An event contract is a type of financial derivative, known as a swap, for which the payoff is based on the occurrence, nonoccurence or the extent of the occurrence of a specified future event or contingency associated with a potential financial, economic or commercial consequence.

While historically used as a tool to hedge against financial and economic risks, there has been a recent trend toward using event contracts as an avenue to allow investors to pursue profit on their more speculative predictions.

Listing a new event contract on a CFTC-regulated exchange is surprisingly simple. Certain designated contract markets can self-certify new offerings, attesting that their products comply with the terms of the Commodity Exchange Act and CFTC regulations.

The CFTC, however, retains the right to step in and conduct a 90-day review to ensure compliance with the commission’s regulations. For example, CFTC Regulation 40.11 prohibits event contracts that reference or relate to certain topics, including terrorism, assassination and — most relevant here — gaming.

Cracking Open the Door — the Kalshi Decision

Last year, the CFTC challenged an attempt by one company, Kalshi, to list event contracts to predict the aggregate outcome of U.S. congressional races. The CFTC’s primary argument was that these contracts violated the CFTC regulation prohibiting gaming contracts.

The District of Columbia disagreed, finding the contracts were permissible under the Commodity Exchange Act and CFTC regulations.

The CFTC appealed and further requested that Kalshi’s ability to list the event contracts be stayed pending the appeal. On Oct. 2, 2024, the U.S. Court of Appeals for the District of Columbia Circuit declined to issue a stay, allowing Kalshi’s contracts to go live.

Thereafter, Kalshi not only relisted the contracts at issue, but also expanded its political election market offerings. To date, the American public has thrown more than $1 billion into Kalshi’s political markets, wagering on topics including President Donald Trump’s cabinet nominations, the words Federal Reserve Chair Jerome Powell will say during his next press conference, and even whether Trump will add himself to Mount Rushmore.

But Kalshi has not stopped at just politics. The company continues to expand into the entertainment space, allowing users to predict daily top artists on Spotify, Rotten Tomatoes scores for upcoming movies and TV shows, and the next actor to play James Bond. For months, though, the question remained: Would Kalshi offer sporting event contracts?

Kalshi Takes the Plunge, Offers Sporting Event Contracts

In late December 2024, Kalshi dove in headfirst, self-certifying and listing event contracts that allowed the public to predict the winner of the Super Bowl and College Football Playoff National Championship. However, just days before Trump’s inauguration, the CFTC pushed back, indicating they intended to review the legality of sporting event contracts.

To date, Kalshi and others continue to offer a slew of sports-related offerings on their websites, including markets for all major American professional sports, college sports and European soccer. Interest has boomed. During the 2025 March Madness tournament, the American public poured over $500 million into Kalshi’s college basketball markets alone.

Reversing Course at the CFTC — From Foe to Friend

Pressure from the CFTC has dissipated since the Trump administration took office. Republican members of the CFTC have been relatively more receptive to the expansion of event contracts into less traditional subject matters and have indicated a more lenient approach to the regulation of sports-related event contracts.

The acting CFTC chair, Caroline Pham, has openly criticized the commission’s “anti-innovation policies of the past several years.” The presumptive next CFTC chair, Brian Quintenz has echoed this sentiment.

On May 5, the CFTC dropped its appeal of the District of Columbia’s decision. In response, Kalshi’s CEO stated, “Kalshi’s approach has officially and definitively secured the future of prediction markets in America.”

Constitutional Questions, Opposition From State Regulators and Tribal Interests

It hasn’t been all smooth sailing for Kalshi, though. Despite waning CFTC opposition, a new opponent has emerged: state gaming commissions. In recent months, gaming commissions in at least six states — Nevada, New Jersey, Maryland, Ohio, Montana and Illinois — have issued cease-and-desist orders, arguing that offering sporting event contracts constitutes the operation of unlicensed sports gambling in violation of state law.

Kalshi has not backed down. In late March in the U.S. District Court for the District of Nevada, the company sued the state’s gaming regulators in KalshiEX LLC v. Hendric and state gaming regulators in New Jersey in the U.S. District Court for the District of New Jersey in KalshiEX LLC v. Flaherty.

Relying on the Constitution’s supremacy clause, Kalshi argued that the actions of state regulators are preempted by the Commodity Exchange Act, wherein Congress granted the CFTC exclusive jurisdiction to regulate financial derivatives traded on approved exchanges.

Both the District of Nevada and the District of New Jersey agreed with Kalshi, allowing them to continue operating their sporting event markets in the states.

On April 21, Kalshi sued Maryland regulators in the U.S. District Court for the District of Maryland, in KalshiEX LLC v. Martin, asserting the same preemption arguments in an effort to continue their run of litigation success.

Tribal interests have also been implicated, with tribal leaders telling the CFTC that widespread legalization of sporting event contracts threatens tribal gaming interests.

At his nomination hearing on June 10, though, CFTC chair nominee Brian Quintenz said “[n]othing in the [Commodity Exchange Act] that I’m aware of prohibits or affects the opportunity of tribes to offer those products, those markets, and those services.”

Is Federal Sports Investing the Future?

If Kalshi’s string of success continues, we may be headed toward a fundamental shift in the sports betting industry. Since the U.S. Supreme Court’s landmark 2018 decision in Murphy v. NCAA, the decision whether to legalize sports betting, and in what forms, has been left to the states. While most states have legalized sports betting, the practice remains outlawed or heavily restricted in a number of states.

If the CFTC continues their hands-off approach and allows Kalshi and other companies to continue to offer sporting event contracts on federal exchanges, the existing state-by-state, patchwork system could be in jeopardy. If Kalshi’s constitutional preemption argument prevails, all individuals — even those residing in states where sports betting remains illegal under state law — would be allowed to invest in sporting event contracts.

Not only would this drastically decrease the power of state legislatures and state gaming regulators, but it would also cut into the market shares of existing competitors. Before the rise of Kalshi, online sports books and brick-and-mortar casinos were the only viable legal outlets for sports wagering.

If investment in sporting event contracts is available to individuals across the nation, regardless of state lines, the profits of companies and tribes that operate these outlets could take a massive hit.

Practice Tips

Legal practitioners currently involved in the sports betting industry, as well as practitioners venturing into this novel area between sports “betting” and sports “investing” should consider the following tips:

Familiarize yourself with applicable financial derivatives laws and regulations, specifically provisions of the Commodity Exchange Act and CFTC regulations.

Understand stakeholder roles and interests, specifically state interests in regulating sports betting, including associated tax revenue, sports book and tribal interests in maintaining current market share and the CFTC’s interest in regulating federal financial derivatives markets.

Appreciate the constitutional doctrines — e.g., preemption — and their potential impact on the future of sports betting and investing.

Follow ongoing developments. Litigation of these disputes continues across the U.S., and, given the large stakeholders involved, is unlikely to slow down. Congressional action and changes in CFTC policy also have the potential to shape the future of the industry.

Conclusion

Somewhat poetically, the only certainty in the world of sports betting the last few years has been uncertainty. The industry remains in unsettled waters, and with the Republican-led federal government recently installed, there is a new captain in charge.

Where the industry lands remains to be seen, but whether it will include a formally approved federal market for the trading of sports-related event contracts hardly seems beyond the horizon, if it is not yet already here.