Prediction Markets Push CFTC to Narrow Gaming Rules

The Coalition for Prediction Markets, a group representing the interests of prediction market platforms, has asked US regulators to clarify how federal rules define “gaming,” raising the alarm over the way a broad interpretation could interfere with the industry’s growth.

The Need for a Narrow Definition

In a letter sent to Christopher Kirkpatrick at the Commodity Futures Trading Commission (CFTC), the group argued that current rules risk capturing activities that should not be treated as gambling.

Platforms such as Kalshi maintain that their products are financial tools, not betting services, arguing that event contracts allow users to trade on real-world outcomes in a way that produces useful market signals.

At the center of the debate is a CFTC rule that restricts contracts linked to “terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law,” along with similar activities considered against the public interest.

The issue is how “gaming” should be interpreted.

The coalition wants the regulator to define the term narrowly, limiting it to casino-style games rather than including sports-related contracts. The group argues that this distinction is essential to separate prediction markets from traditional gambling.

“The Coalition supports a formal rule defining ‘gaming” to cover the casino-style games traditionally regulated by states. This will make clear the difference between event contracts traded on designated contract markets,” the letter states.

The question has already surfaced in court. Judges in the Ninth Circuit recently asked why casino gaming would not include sports betting, noting that placing bets is a common activity in casinos.

The “Economic Significance” Factor

The coalition responded by stressing that prediction markets operate differently.

“Event contracts on DCMs are tied to real-world events associated with a potential financial, economic, or commercial consequence. Wagers on casino games have no economic significance apart from the wager itself.”

On the other hand, state regulators say that contracts tied to sports outcomes fall under sports betting laws, which are handled at the state level and require licenses.

Additionally, professional sports leagues seek tighter oversight, arguing that these markets pose risks similar to traditional betting but lack the same safeguards.

Some of the proposals that have been submitted during the public comment period, which ended on May 1, include raising the minimum participation age to 21, introducing real-time monitoring for suspicious trades, and limiting certain types of contracts linked to injuries or officiating decisions.

Now, the CFTC must decide whether to adjust its rules, an outcome that could shape the way prediction markets operate in the US and establish whether they will keep expanding into sports-related contracts.