CFTC separates event contracts from sportsbook wagers

The Commodity Futures Trading Commission announced two actions on Oct. 9 to clarify the federal distinction between financial derivatives and gambling. One proposal would expressly classify sports, political, cultural and weather event contracts as swaps under the Commodity Exchange Act.

Event contracts generally let traders buy yes-or-no positions on future outcomes for a fixed payout, often $1. Their value depends on whether the predicted event occurs. Traders may use them to speculate or hedge risk.

CFTC Chairman Michael S. Selig described the products covered by the proposal as being within the agency’s exclusive jurisdiction under the Commodity Exchange Act.

The proposal is not final. The CFTC is accepting written comments for 30 days after the proposal is published in the Federal Register.

The agency also announced an interim final rule excluding casino-style products, including sportsbook bets and casino-game wagers, from the swap definition. The rule will take effect when it is published in the Federal Register and will have a 30-day comment period.

The CFTC has not provided a Federal Register publication date for either action. The Oct. 9 announcement therefore does not establish the rule’s effective date or comment deadline.

The federal classification issue is separate from disputes over state gambling laws. In a Sept. 25 ruling on appeals involving prediction-market operator Kalshi, the Sixth Circuit found that the company had not shown that its sports-event contracts met the statutory definition of swaps.

The court also ruled that, even if the contracts qualified as swaps, the Commodity Exchange Act did not expressly or implicitly override gambling laws in Ohio or Tennessee.

Better Markets securities-policy director Benjamin Schiffrin said in an Oct. 9 statement that sports event contracts enable sports betting and should remain subject to state gambling laws.