CFTC’s Sports Event Contracts Gaming Classification Strengthens Federal Preemption Argument While Opening Leverage for Tribes

The CFTC has classified sports event contracts as involving gaming in its notice of proposed rulemaking published on June 10. This marks a reversal from its position in mid-April Ninth Circuit arguments where the CFTC maintained that sports contracts do not involve gaming because the underlying event is not a game of chance. The move appears designed to bolster the agency’s claim that it regulates these products under the Commodity Exchange Act.

Legal experts say the classification helps the CFTC assert authority and box out states and tribes. It reframes the debate from whether the contracts involve gaming to who gets to regulate them. This could strengthen federal preemption arguments while creating new leverage points in tribal litigation.

Defining Gaming to Include Sports

The CFTC’s proposed definition of gaming is any activity that one or more participants typically engage in for purposes of recreation or to entertain others, is governed by rules, and includes measurable occurrences or outcomes that depend on the participants’ luck, skill, or athletic ability during the activity. The document later acknowledges that this definition clearly includes sports.

It also offered an alternative definition about activities created by their rules and purposes that are defined by and internal to the activity itself. The commission clarifies that this too would include sports. In other words, sports event contracts involve gaming.

This is not an automatic ban. The CFTC is rewriting Rule 40.11 to shift from language that sounded like an outright prohibition to a structured public interest test. The new version states the Commission may determine that agreements, contracts, transactions, or swaps are contrary to the public interest. Those subject to such a determination shall not be listed for trading or accepted for clearing on or through a registered entity.

After eighteen years across iGaming and sportsbook operations I have seen how regulators draw these definitional lines. They rarely do so by accident.

Not Automatically Banned Under the Public Interest Test

The CFTC argues that contracts on gaming are not automatically banned. The prohibition would go beyond the instruction given by Congress in the Commodity Exchange Act’s special rule which says the CFTC may ban contracts that it determines to be against the public interest.

In practice the CFTC had always enforced Rule 40.11 as more of a public interest test. The examples of contracts most likely against the public interest are a small sliver focused on topics like injuries or penalties. Prediction markets have largely avoided listing those even before the rulemaking.

Symbolically this feels like a bigger shift. It reverses the mid-April position where the CFTC maintained sports contracts do not involve gaming. CFTC Chair Michael Selig had previously worked on a letter arguing the same.

The Strategic Shift and Litigation Implications

Melinda Roth, a professor at Washington and Lee University’s School of Law who studies the prediction market industry, told InGame the drafters are not stupid. They are thinking about the litigation strategy because classifying sports event contracts as gaming allows them to stop having this question of gaming asked. And instead the question becomes who gets to regulate it. And I think that plays into their hands.

Kalshi has already cited the rulemaking in its Sixth Circuit response brief arguing the CEA expressly preempts state laws with respect to event contracts on DCMs. In its new Illinois lawsuit Kalshi referenced the CFTC’s detailed federal framework regulating the trading of sports events contracts on DCMs.

From the supplier side this kind of clarity on jurisdiction can accelerate commercial deals that operators have been holding back on. Platforms gain a clearer federal lane even as states push back.

Risks, Counterarguments and Tribal Leverage Points

The classification costs the CFTC a prong of its earlier argument that sports event contracts do not involve gaming and therefore cannot be banned under its own rules. One expert in CFTC regulation told InGame I do not think the argument they presented was the strongest.

Roth agrees. She said this classification potentially does have some consequences. I think one is that the CFTC might look less stupid.

Judge Ryan D. Nelson in the Ninth Circuit struggled to see why there would be a distinction between sports contracts and contracts on casino games when both are traditional forms of gambling. Legislative history references the Kentucky Derby, the Super Bowl and the Masters. States argue this shows sports contracts were meant to be banned while prediction markets see CFTC jurisdiction.

Here is where tribes gain leverage. The gaming classification hands tribes a stronger hook in future litigation because many tribal compacts and federal statutes treat sports betting as gaming subject to tribal exclusivity. If the CFTC concedes these are gaming products tribes can argue the federal framework still must respect their sovereign rights rather than fully preempting them. This creates targeted pressure points even as the broader preemption argument tilts toward Washington.

David Aron, special counsel at Lowenstein Sandler, told InGame the CFTC feels bound by the current statutory structure which allows exchanges to self-certify. If it is not in the enumerated categories they cannot even review it. They support these contracts in general but if they find some big problem they can still shut it down.

Roth added that this rulemaking appears intended to create a system that might last beyond the current White House administration. By giving the CFTC discretion you may get more buy-in.

The Bottom Line

The CFTC’s gaming classification looks like a concession but it strengthens the agency’s hand in claiming regulatory primacy and federal preemption over states. For operators and platforms this reduces some jurisdictional fog that has slowed integration and market entry. Tribes however now hold clearer litigation hooks to protect sovereign gaming rights in future disputes. Watch how courts treat the public interest test rewrite. The real test will come when a specific sports contract triggers enforcement and the preemption battle moves from rulemaking to binding precedent.