CFTC’s Partnership With MLB and Major Leagues Signals Federal Preemption Push on Prediction Markets
The Commodity Futures Trading Commission (CFTC) is actively partnering with Major League Baseball and other top U.S. professional sports leagues to identify and punish insider trading on prediction market platforms. Chairman Michael Selig announced the initiative, including a signed memorandum of understanding with MLB, while speaking at the Financial Industry Regulatory Authority conference.
This move comes as the CFTC asserts exclusive federal authority over these markets under the Commodity Exchange Act. It directly challenges state-level bans and tribal lawsuits that treat sports-related prediction contracts as illegal gambling. As someone who has spent decades observing the evolution of gaming regulation, I see this as a defining moment in the tension between federal oversight and state-tribal sovereignty.
CFTC’s Direct Collaboration With Sports Leagues
Chairman Michael Selig confirmed the regulator has sealed a memorandum of understanding with MLB. The agency will work with leagues to flag suspicious trading activity on platforms including Kalshi and Polymarket.
Selig stated the CFTC is in talks with all professional sports leagues. The goal is to crack down on attempts to manipulate sports-related contracts.
This collaboration treats prediction markets as distinct financial products with parallel regulatory regimes, not casino-style gambling. Selig dismissed claims equating the two.
Defending Market Integrity Against Insider Trading Claims
Selig has pushed back against critics who allege insider trading is rampant. In a recent letter to the Wall Street Journal, he wrote that claims the CFTC’s insider trading rules are fuzzier than others are simply untrue.
He emphasized the agency’s role as a vigilant regulator. Selig warned that efforts to regulate platforms away would push prediction markets offshore, where no rules exist.
These markets provide significant benefits to individuals, businesses, and the broader economy. The CFTC will continue to ensure their integrity and growth.
The New York Times recently reported that 80 Polymarket accounts displayed suspicious betting patterns over the past two years. Account holders won big on dozens of longshot bets, earning hundreds of thousands of dollars in cryptocurrency. This underscores the operational need for robust surveillance shared between the CFTC and leagues.
Federal Preemption Versus State and Tribal Authority
The CFTC is set to clash with states pursuing bans on prediction market activity. Minnesota lawmakers voted in favor of a bill banning a swath of prediction market activity, including sports-related contracts.
Several New Mexico tribes have filed a lawsuit against Kalshi. The tribes claim the provider is violating Indian gaming law by offering illegal gambling services.
Nevada previously won a legal battle forcing Kalshi to temporarily cease operations in the state. A court upheld and extended that ban early last month.
Selig made the federal position clear. Under the Commodity Exchange Act, the CFTC holds exclusive authority over prediction markets. The regulator would sue states that seek to block them without its approval.
This raises profound questions of tribal gaming sovereignty. Tribes have long operated under a framework of exclusive federal recognition and negotiated compacts. If courts ultimately affirm CFTC preemption here, it could erode the foundational role tribes play in U.S. gaming. Sovereignty must remain a foundation, not a footnote, even as new verticals like prediction markets converge with sports betting.
Risks, Competitive Implications, and the Long-Term Outlook
A counterargument persists. Critics, including a recent Wall Street Journal op-ed, contend prediction market contracts are really old-fashioned betting. The piece estimated around 90% of activity on the Kalshi platform is sports-related.
Selig rejected that characterization. Yet the risk of insider trading remains real, particularly where athletes, officials, or insiders hold non-public information. Sports leagues’ participation helps mitigate this, but it does not eliminate competitive tension with traditional sports betting operators.
Prediction markets could draw liquidity away from regulated sportsbooks in states where both coexist. This structural shift may force sportsbooks to innovate on hedging, pricing, and customer acquisition.
Consultancy Eilers & Krejcik predicted that sports contracts would account for 44% of the volume on prediction markets in the long term. The consultancy added that markets’ annual trading volumes could reach $1 trillion by the end of 2029.
The Bottom Line
The CFTC’s proactive engagement with MLB and other leagues strengthens its case for federal preemption while addressing legitimate integrity concerns. Yet the collision with state bans and tribal lawsuits highlights unresolved jurisdictional friction that operators and tribes must navigate carefully. Client-partners should treat this regulatory convergence as a planning input, not a grievance. Clearer boundaries between federal financial oversight and tribal gaming sovereignty will ultimately determine whether prediction markets deliver their promised economic benefits or remain mired in litigation. The next several months of enforcement actions and court rulings will clarify the landscape.
