The proposal
The Commodity Futures Trading Commission on 9 October published proposed rules that widen the definition of swaps to include event contracts on sports, politics, culture and weather. It is the latest move in the fight over who regulates the sector. The American Gaming Association estimates states have lost more than $1bn in tax revenue to it.
CFTC chair Michael Selig said event contracts are commodity derivatives that fall under the commission's exclusive jurisdiction under the Commodity Exchange Act. The agency leans on an April ruling by the Third Circuit in KalshiEX v Flaherty, which held that sports outcomes carry commercial consequences for sponsors, broadcasters, franchises and cities. The CFTC cited Madison Square Garden Sports' market capitalisation nearly doubling alongside the New York Knicks' run in the NBA playoffs, and $380m in revenue for New York's economy.
The circuit split
The Ninth Circuit ruled the other way in August. Judge Ryan Nelson said event contracts should count as bets on sports rather than financial hedging tools. The Sixth Circuit added that even if they are swaps, they do not displace sports betting laws. The disagreement between the circuits raises the odds the case lands at the Supreme Court.
Mike Dreitzer, head of the Nevada Gaming Control Board, called the contracts illegal at an AGA conference and accused prediction markets of deception. The proposal keeps casino games such as blackjack out of the swap definition, which should ease operators' concerns. Public comments are open for 30 days after publication in the Federal Register.
