The U.S. gaming industry has escalated its opposition to sports prediction markets by urging Congress to exclude sports event contracts from federal derivatives rules. According to a Semafor report published Tuesday, several gaming organizations sent a letter to the Senate asking lawmakers to include language in pending crypto legislation that would make clear sports betting falls outside the authority of the Commodity Futures Trading Commission. Among the signatories were the American Gaming Association, the Indian Gaming Association, and the Association of Gaming Equipment Manufacturers. The groups argued that prediction market platforms have created what they described as the largest expansion of gambling in U.S. history without voter approval or legislative authorization, effectively providing nationwide sports betting while presenting those products as federally regulated financial instruments. The letter specifically stated that "By offering nationwide sports betting through so-called 'sports event contracts' and branding it as a federally regulated financial product, these platforms have bypassed state and tribal law, weakened consumer protections, and undercut a system built on local control."
The gaming industry's push adds to growing opposition from multiple fronts. Earlier this month, former CFTC Chair Gary Gensler told the Sixth Circuit Court of Appeals that sports prediction contracts do not fit the definition of swaps under the Dodd-Frank Act because they are not used to hedge economic or commercial risks. In that filing, Gensler argued that Congress designed derivatives regulation around risk management rather than sports wagering. Gaming organizations have advanced similar arguments in court, with the Indian Gaming Association and affiliated tribal groups recently telling the appellate court that sports prediction markets interfere with tribal gaming systems established under federal law, while the American Gaming Association argued that prediction markets and traditional sportsbooks perform substantially similar functions. The latest industry letter further criticized that "the CFTC was not created to regulate gambling or sports wagering, as the agency 'lacks both the expertise and the infrastructure to police nationwide sports betting.'"
Enforcement actions and legal disputes have emerged in states including Ohio, Nevada, New Jersey, Maryland, Montana, Illinois, New York, Connecticut, Arizona, Wisconsin, and New Mexico. Just days ago, the CFTC sued New Mexico after state officials moved against Kalshi over alleged unlicensed sports betting activity, arguing that federally regulated event contracts fall under its exclusive jurisdiction through the Commodity Exchange Act. The CFTC has sued nine states since April 2, when it launched lawsuits against Illinois, Arizona, and Connecticut, followed by New York, Rhode Island, Wisconsin, and Minnesota. The agency's legal strategy has received support from recent court decisions, with the Third Circuit Court of Appeals ruling in April that New Jersey could not block Kalshi's sports-related event contracts because authority over those markets rests with the CFTC under the Commodity Exchange Act. Multiple states have issued enforcement actions against major platforms Kalshi and Polymarket, accusing them of violating state gambling laws.
Lawmakers are currently considering the CLARITY Act, the leading crypto market structure bill in Congress, with the Senate Banking Committee having advanced the legislation last month. A full Senate vote remains the next major step. Meanwhile, the CFTC has simultaneously moved toward establishing a formal framework for reviewing event-based contracts, according to a Wall Street Journal report. The regulator is developing rules that would evaluate contracts individually rather than imposing blanket bans across entire categories of markets, with sports-related contracts tied to player injuries or specific in-game events facing additional scrutiny. In March, U.S. Senators Adam Schiff and John Curtis introduced the Prediction Markets Are Gambling Act, a bill that would prohibit sports and casino-style prediction contracts from being listed or traded on registered platforms. The CFTC has proposed rules that would support sports-related prediction markets while limiting bets on terrorism, assassinations, and war.
Prediction market platforms have gained significant traction during the 2024 elections and continue to draw participation ahead of this year's midterm elections. Kalshi recorded $16.81 billion in monthly volume in May, up from $14.81 billion in April, according to The Block's data dashboard, while Polymarket posted $7.08 billion in volume last month, down from $9.01 billion in April. Despite the regulatory challenges, these platforms remain the dominant players in the prediction market sector. The industry's push for congressional action comes as the sector faces growing political and regulatory scrutiny, with the CLARITY Act representing the primary vehicle for crypto market structure legislation that could significantly impact how sports prediction markets operate in the United States.
