The U.S. gaming industry has urged Congress to use crypto market structure legislation to block sports and casino-style prediction markets from operating under federal derivatives rules.
Summary
- U.S. gaming groups have urged Congress to exclude sports and casino style prediction markets from CFTC oversight through the CLARITY Act.
- Industry organizations said prediction market platforms are bypassing state and tribal gaming laws by offering sports event contracts as financial products.
- The push adds to a growing dispute involving states, tribal groups, regulators, and prediction market firms over who should control sports related event contracts.
According to a Semafor report published Tuesday, several gaming organizations sent a letter to the Senate asking lawmakers to include language in pending crypto legislation that would make clear that sports betting falls outside the authority of the Commodity Futures Trading Commission.
Among the signatories were the American Gaming Association, the Indian Gaming Association, and the Association of Gaming Equipment Manufacturers. The groups argued that prediction market platforms have created what they described as the largest expansion of gambling in U.S. history without voter approval or legislative authorization.
In the letter cited by Semafor, the organizations said platforms offering sports event contracts have effectively provided nationwide sports betting while presenting those products as federally regulated financial instruments. They argued that this approach bypasses state and tribal gaming laws, weakens consumer safeguards, and undermines a regulatory system that supports local tax revenue and community programs.
Concerns over responsible gaming standards also featured prominently. According to the letter, prediction market operators expose younger users to gambling products while offering fewer protections than traditional sportsbooks. The groups further added that the CFTC was established to oversee derivatives markets rather than sports wagering and lacks the expertise and infrastructure required to regulate nationwide betting activity.
Lawmakers are currently considering the CLARITY Act, the leading crypto market structure bill in Congress. The Senate Banking Committee advanced the legislation last month, and a full Senate vote remains the next major step.
Debate over prediction markets expands beyond regulators
Pressure on prediction market operators has intensified as courts, regulators, gaming groups, and lawmakers continue debating who should oversee sports-related event contracts.
Earlier this month, former CFTC Chair Gary Gensler told the Sixth Circuit Court of Appeals that sports prediction contracts do not fit the definition of swaps under the Dodd-Frank Act because they are not used to hedge economic or commercial risks. In that filing, Gensler argued that Congress designed derivatives regulation around risk management rather than sports wagering.
Gaming organizations have advanced similar arguments in court. The Indian Gaming Association and affiliated tribal groups recently told the appellate court that sports prediction markets interfere with tribal gaming systems established under federal law, while the American Gaming Association argued that prediction markets and traditional sportsbooks perform substantially similar functions.
At the same time, several states have challenged platforms such as Kalshi and Polymarket, arguing that sports-related contracts should comply with state gambling laws. Enforcement actions and legal disputes have emerged in states including Ohio, Nevada, New Jersey, Maryland, Montana, Illinois, New York, Connecticut, Arizona, Wisconsin, and New Mexico.
Federal regulators, however, have continued defending their authority over the sector.
Just days ago, the CFTC sued New Mexico after state officials moved against Kalshi over alleged unlicensed sports betting activity. In that case, the agency argued that federally regulated event contracts fall under its exclusive jurisdiction through the Commodity Exchange Act and cannot be subjected to state gaming enforcement.
CFTC continues building framework for event contracts
While opposition to sports prediction markets has grown, the CFTC has simultaneously moved toward establishing a formal framework for reviewing event-based contracts.
According to a Wall Street Journal report published earlier this month, the regulator is developing rules that would evaluate contracts individually rather than imposing blanket bans across entire categories of markets. Sports-related contracts tied to player injuries or specific in-game events could face additional scrutiny, while contracts involving terrorism, assassinations, war, or political violence may receive even closer examination.
The proposal suggests the agency is considering a system that would permit some event contracts while reviewing others against public-interest standards.
Political attention has also increased. In March, U.S. Senators Adam Schiff and John Curtis introduced the Prediction Markets Are Gambling Act, a bill that would prohibit sports and casino-style prediction contracts from being listed or traded on registered platforms.
For prediction market operators, the outcome could determine whether sports event contracts remain under a single federal framework or become subject to separate state licensing, compliance, and enforcement requirements across the country.
