Casino operators face tighter swap rules under CFTC decision

CFTC swap rule leaves casino operators in a tighter position than courts did

Tom Reeg said it plainly at the Global Gaming Expo in Las Vegas: Caesars is prepared to enter prediction markets, but only if it can do so without losing what it already has. That calculation — weighed against a federal rulemaking that has not yet cleared White House review — is where the legal architecture of this market is actually being built.

The CFTC has sent two rules to the Office of Information and Regulatory Affairs. The first, RIN 3038-AF82, would amend the regulatory definition of a "swap" to cover event contracts — the yes-or-no instruments traded on prediction market platforms. The second, RIN 3038-AF81, would carve casino-style gambling products out of that definition. The Commission classified both as not economically significant, which means the public has not yet seen the full text of either.

That classification is worth sitting with. The swap definition under the Commodity Exchange Act is the load-bearing wall of the CFTC's preemption argument. If event contracts are swaps, they fall under federal authority, and CFTC Chairman Michael Selig has argued that authority is exclusive — meaning states cannot regulate what the Commission covers. The interim final rule on the casino carve-out can take effect while public comment is still being collected. The proposed rule covering event contracts cannot. That sequencing is not administrative housekeeping.

What the Commission is attempting is a jurisdictional boundary drawn by rulemaking rather than by courts. The courts have not been cooperative. The Sixth Circuit found that sports event contracts are not federal swaps. The Ninth Circuit found that federal commodities law does not prevent states from enforcing gambling laws against prediction market operators — a ruling that pushed Kalshi out of Nevada in August. Those decisions are why New Jersey's attorney general asked the Supreme Court to take up the jurisdictional question, and why the Court's current term opened with prediction markets on its docket.

The established rule is that an agency's statutory interpretation receives deference when Congress has not spoken directly to the question and the agency's construction is reasonable. Whether event contracts fall within the Commodity Exchange Act's definition of a swap is precisely the question courts have now answered in conflicting ways. An interim final rule issued while that conflict sits before the Supreme Court is not foreclosing the judicial question — it is running alongside it.

For MGM, the CFTC's rulemaking offers no near-term relief. Nevada regulators have told licensees directly that offering sports event contracts in other states could affect their suitability. Bill Hornbuckle said the company made its decision quickly after that warning. Federal preemption, if it ultimately holds, would change that calculus — but it does not hold yet, and the Nevada Gaming Control Board's suitability standard does not wait for the Supreme Court.

The standard that applies here is whether a final swap rule, if upheld, would constitute federal law sufficient to preempt state licensing conditions under the Supremacy Clause. That is the question OIRA is reviewing, that the Supreme Court has been asked to take, and that Caesars and MGM are pricing into decisions they are making right now.