6 minute read | March.20.2026
Last year, we expected that then-incoming CFTC Chair Michael Selig would take a wait-and-see approach to sports event contracts and let courts sort out their regulatory status. In the interim, courts have been inundated with nearly 50 active state and federal lawsuits on the topic, with appellate proceedings underway in the Third, Fourth and Ninth Circuits.
Chair Selig’s earlier posture seems like ancient history, as he has now come out swinging. Last month alone:
In a March 9 speech, Selig declared that the “CFTC’s authority over a broad definition of the term ‘commodity’ has been upheld repeatedly in the federal courts,” and “the onslaught of lawsuits by states attempting to undermine our authority is not going to work and, candidly, surprising.” And in the wake of unprecedented criminal charges by Arizona against a prediction market platform, Selig responded that a criminal prosecution was “entirely inappropriate” and the CFTC is “evaluating its options.”
The states, of course, beg to differ. The litigation over sports event contracts boils down to two major questions: (1) whether sports event contracts are considered swaps under the CEA; and (2) the extent of the CEA’s preemption of state regulatory action.
Swaps. The CFTC and platforms argue that sports event contracts traded on CFTC-registered Designated Contract Markets (DCMs) are “swaps” under the CEA, because the statutory definition (after Dodd-Frank) is deliberately broad, requiring only that a contract be tied to the “occurrence or nonoccurrence” of an “event or contingency associated with potential financial, economic, and commercial consequences.” Under this view, sports events are economic enterprises that generate billions of dollars in activity, so the definition of “swap” is easily satisfied. The states have countered that who wins a sports game is an “outcome,” rather than the occurrence or non-occurrence of an “event.”
Preemption. Once sports event contracts are treated as swaps on DCMs, according to the CFTC and the platforms, state gambling regulations or prohibitions are both “field-preempted” and “conflict-preempted.” In particular, the Commission argues that the CEA’s requirement of “impartial access” to derivatives markets cannot coexist with state bans. A state-by-state regime would produce “destabilizing economic effects,” which Congress meant to avoid by placing these products within a uniform federal framework. The states respond that gaming and gambling regulation is the traditional prerogative of the states, and the duty of “impartial access” applies only among eligible participants, and does not require a DCM to offer (or allow trading in) a product that state law otherwise regulates or treats as illegal.
Rule 40.11. A related issue, invoked most explicitly by Nevada, is the existing text of Rule 40.11(a), which provides that a registered entity “shall not” list contracts involving “gaming” or unlawful activity under state or federal law. But the Rule does not expressly define “gaming,” unlike the withdrawn proposal described above. Further, Rule 40.11(c) establishes a case-by-case review process under which the CFTC may subject a self-certified contract to a 90-day “public interest review,” request suspension of listing or trading during that period, and then issue an order approving or disapproving the contract. To date, however, that review process has not been invoked with respect to sports event contracts, which helps explain why Rule 40.11 has largely remained in the background of the litigation thus far. However, a federal district court in Ohio – denying a platform’s request for a preliminary injunction – stated on March 9 that “the agency’s inaction is not proof that the sports-event contracts are regulated by or permissible under the CEA.”
Lawsuits, Rulings, and Appeals. The litigation is only intensifying. On February 19, a platform scored a win in Tennessee, where the Court granted the platform’s preliminary injunction motion on the grounds that it is likely to succeed on its argument that sports event contracts are “swaps,” and that Tennessee’s threatened enforcement is conflict-preempted. This month, however, federal district courts in Ohio and Michigan denied platforms’ requests for a preliminary injunction and temporary restraining order, respectively, finding that no such likelihood had been shown as to swaps and preemption. Meanwhile, the Third Circuit has already heard appellate argument; the Ninth Circuit has oral argument set for April 16; and argument in the Fourth Circuit is set for May 7. And the lawsuits roll on: a platform most recently filed preemptive suits in Utah, Iowa, and Arizona, only for Arizona to respond by filing criminal charges and defeating the same platform’s request for a temporary restraining order on the same day. With district courts split and multiple circuits poised to weigh in, the odds of these issues eventually reaching the Supreme Court are sharply rising.
Market Integrity. Although most trading activity derives from sports event contracts now, the road ahead extends well beyond sports. As these markets scale into politics, pop culture and war, issues of market integrity will continue to take center stage, including questions of insider trading. As liquidity grows on prediction markets, so do incentives for participants with nonpublic information (or the ability to shape the underlying event) to trade ahead of everyone else. The recent “Maduro trade” is a preview: a trader reportedly netted $410,000 on event contracts tied to Nicolas Maduro’s removal, placing sizable trades shortly before the news broke. And Israeli authorities have indicted a reservist and a civilian for allegedly using classified information to place trades on Iranian military operations. The CFTC already has tools at its disposal to counteract this risk, including the so-called “Eddie Murphy Rule” aimed at trading on misappropriated nonpublic government information, and CFTC Rule 180.1, which is modeled on the anti-fraud provisions of SEC Rule 10b-5. A recent advisory, on the heels of two matters internally enforced by a prediction market, makes clear that the agency intends to investigate and prosecute misconduct in appropriate cases.
CEA Private Right of Action. Private plaintiffs are increasingly bringing damages claims under the CEA, which provides for a private right of action under 7 U.S.C. § 25. In the context of prediction markets, plaintiffs are likely to follow a familiar playbook, by alleging that certain defendants used “manipulative or deceptive devices” in connection with trading in event contracts (e.g., spoofing, wash trading or dissemination of false information), causing traders to transact at artificial prices and suffer actual damages. We expect to see a significant uptick in such litigation against both market participants and the platforms themselves.
Rulemaking. Beyond scrapping the Biden-era proposal described above, the CFTC has now initiated a rulemaking process for event contracts. Chair Selig noted in January that the existing framework had proven “difficult to apply” and failed to provide sufficient certainty to market participants, and on March 12, the CFTC issued an Advance Notice of Proposed Rulemaking and request for public comments, which are due by April 30. This process is likely to be lengthy, proceeding from public comment to formal proposed rule, followed by another comment period, and ultimately a final rule.