Supreme Court petition challenges CFTC event contract rules

Supreme Court petition on event contracts lands as CFTC rewrites the rules

On October 9, hours before the opening kickoff of a football weekend, the CFTC released a notice of proposed rulemaking that does something the agency has never done in writing: it expressly defines swaps to include event contracts based on sports, politics, culture, and weather. Chairman Michael Selig put his name on it. The timing was not accidental.

The proposal arrived while the NFL's Supreme Court petition is still pending. That sequence matters more than either development does alone.

Here is what the CFTC has done, structurally. The Third Circuit ruled in April that sports event contracts qualify as swaps because their outcomes carry economic consequences for identifiable commercial parties — sponsors, broadcasters, franchises, the municipalities whose tax receipts move with playoff attendance. The CFTC cited that reasoning extensively in the proposed rules. The agency is now codifying the Third Circuit's logic before the Supreme Court decides whether to hear the NFL's challenge to it. If the Court grants certiorari and reverses, it reverses a circuit decision and a proposed rule simultaneously. The cost of reversal just went up.

This is a familiar move in regulatory litigation. You establish the administrative record before the court acts, so that any court unwinding the rule faces an APA problem on top of the jurisdictional one. I have seen this in a different context — a regulator formalising an interpretation in writing during active litigation — and the effect is always the same: it raises the institutional cost of the adverse ruling, even when it does not change the underlying legal question.

The underlying legal question has not changed. A swap, under Dodd-Frank, requires a connection to events with "financial, economic or commercial" consequences. The NFL's argument, at its core, is that sporting outcomes do not clear that bar in any way Congress intended. The CFTC's answer — and the Third Circuit's answer — is that Madison Square Garden Sports' valuation nearly doubling during the Knicks' championship run is exactly the kind of commercial consequence Congress had in mind. Whether five Justices agree with that reading is the only thing that matters, and the proposed rule does not resolve it.

What the proposed rule does resolve is the question of CFTC intent. Before October 9, a state attorney general challenging a Kalshi contract could argue that federal preemption was unclear because the CFTC had never formally claimed these products. That argument is now harder to make. Selig's statement — "squarely within the CFTC's regulatory remit," "exclusive jurisdiction" — is the kind of agency declaration that gets weighed in preemption analysis. New York's lawsuit against Kalshi, already testing whether state fraud law reaches a federally licensed exchange, just acquired a more explicit federal counterparty.

The markets that have been tracking certiorari probability have not priced this correctly, in my view. The rulemaking does not make cert less likely — the circuit split and the NFL's petition exist independently of what the CFTC writes. But it does shift what a Supreme Court ruling would actually accomplish. A reversal that voids both the Third Circuit decision and a finalised swap rule is a different institutional event than one that simply remands a jurisdictional question. The Court knows this. Whether it changes the grant calculus is the open question the proposed rules were designed to complicate.