CFTC tells appeals court prediction markets are swaps, not gambling

The U.S. Commodity Futures Trading Commission argued in a May 12 amicus brief that event contracts on platforms like Kalshi are federally regulated swaps, not state-level gambling products, deepening a jurisdictional clash with Ohio and at least four other states.

"The CFTC will not allow overzealous state governments to undermine the agency’s longstanding authority over these markets,” CFTC Chairman Michael S. Selig said in a statement, asserting the agency's "exclusive jurisdiction" under the Commodity Exchange Act [CEA].

The filing in the Sixth Circuit Court of Appeals counters Ohio's attempt to restrict Kalshi's sports-related contracts. The CFTC's move comes just one day after a federal judge in a separate Wisconsin case on May 11 allowed a lawsuit by the Ho-Chunk Nation against Kalshi to proceed, finding the tribe plausibly argued the contracts constitute illegal gaming on their lands.

The conflicting legal battles create significant uncertainty for the burgeoning prediction market industry, where firms like Kalshi generate over $1 billion annually from sports contracts alone. The outcome will determine whether these platforms operate under a single federal framework for derivatives or a complex patchwork of state-by-state gambling laws, a decision with major implications for products linked to sports, elections, and crypto assets.

Federal Regulator Claims ‘Exclusive Jurisdiction’

At the heart of the Ohio case, KalshiEx LLC v. Schuler, is the CFTC’s assertion that contracts tied to the outcome of future events are "swaps," a type of financial derivative that falls under its sole regulatory purview. The agency noted in its filing that contracts based on elections, weather, and economic data have traded under its oversight for years, and that sports-related products are merely the latest evolution of this market.

By defining these products as swaps, the CFTC argues that the CEA preempts any state-level attempts to regulate them as gambling. The agency warned that allowing states like Ohio, Arizona, Connecticut, Illinois, and New York to apply their own gambling laws would destabilize national derivatives markets and create contradictory legal standards.

A Conflicting Ruling from Wisconsin

The CFTC's forceful stance contrasts sharply with recent developments in Wisconsin. There, U.S. District Judge William Conley rejected Kalshi’s motion to dismiss a lawsuit from the Ho-Chunk Nation. The tribe argues that Kalshi’s online offerings, which are accessible on tribal lands, violate the Indian Gaming Regulatory Act (IGRA) by infringing on the tribe's exclusive rights to manage Class III gaming.

Judge Conley wrote that the case “principally concerns the ability of plaintiff Ho-Chunk Nation, a federally-recognized Indian tribe, to prohibit online sports betting from occurring on its tribal land.” He also noted that gaming activity legally occurs where the bettor is physically located, a key jurisdictional point for the tribe.

While allowing the case to move forward, the judge did not grant the tribe's request for an immediate injunction to block Kalshi's operations. He cited a lack of evidence showing a "measurable change" in the tribe's casino revenues, which support its government operations. The ruling highlights the high stakes for tribes, who see prediction markets as a direct threat to their primary source of revenue. According to court filings in the Wisconsin case, sports contracts account for approximately 90% of Kalshi's more than $1 billion in annual revenue.

This article is for informational purposes only and does not constitute investment advice.