Washington’s End-Run Around Sports Betting Laws
The CFTC’s risky gamble on prediction markets will not pay off.
By Mick Mulvaney
There was a time not long ago when we had a reasonably clear line in this country between investing and gambling. One was understood to be a productive, regulated activity tied to economic growth and capital formation. The other was entertainment—sometimes harmless, sometimes not—but always recognized for what it was: a wager on uncertain outcomes.
That line is now being erased.
Prediction markets, once pitched as quirky tools for forecasting elections or economic indicators, are rapidly transforming into something far more familiar: sports betting platforms. The overwhelming majority of activity on U.S. prediction markets consists of sports betting, and professional leagues are striking deals with these platforms to capitalize on the trend.
Unlike the sportsbooks that states have carefully legalized and regulated over the past decade, these markets operate in a gray zone—one that is being stretched into outright defiance of state law.
Let’s be plain about it: offering “event contracts” on the outcome of a football game or on how many points LeBron James will score is not financial innovation. It is sports betting. Calling it anything else is a linguistic trick designed to evade the rules that govern gambling in the United States.
Regulatory Arbitrage
Proponents argue that prediction markets are “derivatives,” or financial instruments akin to futures contracts. In legitimate markets, such derivatives serve important purposes: hedging risk, aiding price discovery, and facilitating efficient capital allocation. They are tied to underlying economic activity such as commodities, interest rates, and currencies.
These markets deliver tangible benefits to society. For example, oil futures contracts allow airlines to hedge the risk of volatile fuel costs and sell seats on flights months into the future, giving customers an opportunity to plan their travel. A contract that pays out based on whether America wins this summer’s World Cup is not the same. There is no underlying asset. No hedging function. No connection to economic productivity. There is only a bet—speculation for speculation’s sake.
Yet by framing these wagers as derivatives, prediction market platforms seek to place themselves under the jurisdiction of the Commodity Futures Trading Commission (CFTC) rather than state gaming regulators. In fact, that’s the whole ball game for prediction markets. Federal oversight, in this context, offers a way to bypass state laws governing legal gambling in this country. It is regulatory arbitrage.
This is a clever argument. It is also a dangerous one. If accepted, it means that any company could take what is plainly gambling, rename it as a financial product, and escape the safeguards that states have spent years building. No gambling age minimums, no state tax contributions, no responsible gaming support, and no option for states to keep gambling illegal.
States’ Rights—Until They Get in the Way
In 2018, the Supreme Court struck down the federal ban on sports betting, returning authority over the issue to the states. Since then, most states have moved cautiously, balancing the economic benefits of legalization against the social costs of problem gambling. Some have embraced sports betting, but with guardrails: licensing requirements, tax regimes, advertising restrictions, and—perhaps most crucially—age limits, often set at 21 and over. Others, including my home state of South Carolina, have chosen not to legalize it at all.
That is federalism in action. It is messy but it reflects the values and preferences of different communities. What’s right for New Jersey may not be what’s right for Utah, and that’s okay.
Yet by operating under the banner of federal financial regulation, prediction markets platforms are effectively seeking to legalize sports betting nationwide for anyone 18 and over with no guardrails in place. They are bulldozing established law, and the CFTC is happy to seize the opportunity to expand its authority in a bold regulatory landgrab.
Thankfully, states are pushing back. Attorneys general across the country, 41 in total from both major parties, have expressed opposition to the CFTC’s assertion of regulatory power over sports betting. They see the stakes clearly: if this federal overreach is allowed to stand, states will lose their ability to control gambling within their own borders.
Republican and Democratic AGs alike have sued prediction market operators like Kalshi to stop them from offering sports event contracts. In an extraordinary move, the CFTC is now suing those states, alleging that they are attempting to usurp the agency’s authority. Think about that for a moment. A federal agency, tasked with overseeing financial markets, is now litigating against states to ensure that companies can offer wagers on sports outcomes without adhering to state gambling regulations.
If that sounds backward, it’s because it is. Commonsense Americans of all political stripes can agree that this is an audacious attempt to hijack states’ authority and hand it to the federal government.
A Backdoor to Underage Gambling
There is ample evidence to suggest that prediction markets platforms are targeting those most at risk. Many states have countered by restricting participation to adults, typically those 21 and older. But the platforms say they don’t need to comply, which means that teenagers, who would otherwise be barred from placing a bet with a licensed sportsbook, can still access sports event contracts with relative ease.
The platforms understand their advantage and are now targeting teens. Kalshi and Polymarket, the two biggest companies in the space, are paying teenage influencers to pump out social media content promoting their products and sponsoring clubs on college campuses.
The platforms are marketing themselves in online spaces where younger audiences are highly active. The messaging emphasizes ease of use, quick returns, and the thrill of participation—all hallmarks of traditional gambling advertising, but without the same regulatory constraints. The result is a backdoor to underage gambling.
A Global Casino
Even President Trump has raised concerns about prediction markets, despite his own agency’s fierce advocacy on their behalf.
“The whole world, unfortunately, has become somewhat of a casino,” Trump told reporters last month. “I don’t like it, conceptually, but it is what it is. No, I think that I’m not happy with any of this.”
The president’s remarks strike at the core of the issue. Under the federal law that governs CFTC-regulated derivatives, the Commodity Exchange Act, futures contracts are supposed to provide some societal value. Gambling for the sake of gambling should not exist on regulated exchanges, but the CFTC has refused to use its authority to reject such contracts, like player props and sports parlays, which do not provide societal benefits.
Some markets offered under prediction platforms may deliver tangible benefits to society, but sports betting is not among them. It’s time for CFTC Chair Mike Selig to listen to the president and rein these markets in. Failure to act risks permanently associating prediction markets with the kind of casino-like behavior the president has criticized.
The House or The Street
Prediction markets firms say they are distinct from licensed sportsbooks because they allow traders to bet against one another, whereas with sportsbooks users bet against the house. Sportsbooks profit when users lose; prediction markets have no skin in the game, they say.
The data tells a more complicated story. A recent Wall Street Journal investigation found that the overwhelming majority of profit made on prediction markets goes to a tiny fraction of traders with sophisticated data and software to optimize their trading.
It may be true that prediction market users aren’t betting against the house, but they are betting against Wall Street shops cropping up to take advantage of amateur gamblers. In fact, some of the easiest pickings for these institutional traders come on sports betting. Michael Boss, a former professional poker player and a statistician by training, told WSJ, “you’re going to find that the easiest money is going to be in sports.”
“Sports has the attention of all the sick young men, I guess,” he added. By “sick,” he clarified, he meant gambling addicts.
A Path Forward
None of this is inevitable, and it doesn’t have to continue. Policymakers at both the state and federal levels have options. The CFTC can and should clarify that sports event contracts fall outside the scope of legitimate derivatives markets.
Congress can step in to reaffirm that such contracts constitute gambling and that it is up to the individual states, not the CFTC, to regulate the practice. States, for their part, should continue to assert their authority, both in the courts and through coordinated action. The fact that 41 out of 50 attorneys general have already spoken out suggests there is broad, bipartisan recognition of the issue. There are already many lawsuits working their way through the courts, and I believe judges will ultimately reinforce the established decisions on sports betting—that it is state jurisdiction.
The public, including consumers, parents, and voters, should demand transparency. If a platform offers what is effectively sports betting, it should be regulated as such. No exceptions and no rebranding. If you agree, write to your representatives and ask them what they are doing to protect your children from underage, unregulated, and unsafe sports gambling on prediction markets.
We already have a framework for regulated gambling in this country. It is imperfect but reflects years of experience and hard-earned lessons about the risks involved. We should not allow that framework to be quietly dismantled through semantic sleight of hand.
The line between investing and gambling matters. It matters for consumer protection, for state sovereignty, and for the integrity of our markets. Right now, that line is being tested. We would be wise to hold it.
Mick Mulvaney, former Chief of Staff to President Trump, is Executive Director of Gambling is Not Investing, a coalition committed to stopping prediction markets from offering sports event contracts.
States have not "moved cautiously" on sports betting.
Sports betting was cynically embraced as revenue for the state coffers .
It is, however, a vice. And destroys both the bettor as well as sports itself.
Sports betting should be illegal.
I'm in the commodity futures business for over 40 years now. The CFTC used to apply what they called an "economic purposes test" to every contract market any and every exchange wished to list. Years ago, the CFTC begrudgingly agreed to "self-certification" whereby contracts very similar to existing contracts could be listed without going through a full approval process provided the exchange did some due diligence. Under those circumstances. exchanges could bypass the CFTC. For example, say an exchange offers a futures contract on Treasury notes with a 10 year maturity. If an exchange wanted to list a contract on Treasury notes with a 5 year maturity that was allowed without going through a full approval process. An exchange could self-certify that contract market. This courtesy, that the CFTC extended to exchanges, has run amuck. Everything is self certified these days. It is ridiculous. Binary options on the results of a game, which is what the prediction markets are offering, could not pass an economic purposes test in a million years.