CFTC asserts exclusive power over sports betting contracts in court dispute

Federal court splits deepen as CFTC claims sole authority over sports contracts

In the main hall at The Venetian Expo last Tuesday, Bill Miller told several thousand gaming executives that Kalshi had processed more than $190 billion in sports bets and paid nothing in taxes. He called prediction market operators "well-funded bad guys." The room agreed with him. That consensus is not the interesting part.

The interesting part is the legal architecture underneath the fight — because the architecture does not care about the consensus in the room.

The CFTC's position rests on the Commodity Exchange Act, which grants the Commission exclusive jurisdiction over swaps and event contracts designated on registered contract markets. The agency's argument, now sharpened through two rulemakings sent to the White House for review, is that a sports event contract structured as a derivative is a federal instrument first and a gambling product never. Under that reading, state gaming statutes cannot reach it. The Supremacy Clause is not ambiguous on what happens when a valid federal regulatory scheme occupies a field: state law yields.

What Miller is describing at G2E — operators who tell tribal governments and state regulators that their laws don't matter — is not arrogance for its own sake. It is a preemption argument dressed in a press release. Whether it holds depends on whether federal courts conclude that the CFTC's jurisdiction is genuinely exclusive or whether sports contracts fall into a statutory gap the Commission is claiming rather than filling.

I have watched regulators paper over gaps before. The move looks confident from the outside. It tends to collapse at the seams where the underlying statute runs out. The Commodity Exchange Act was written to govern derivatives markets. The question courts will eventually have to answer — and the circuit split already developing makes this a Supreme Court problem within two years — is whether Congress, when it authorized event contracts, intended to authorize anything a registered exchange chooses to certify. CME's Terry Duffy noted publicly that his exchange filed roughly 2,500 self-certifications without a single CFTC objection. That number is not a defense of prediction market operators. It is a description of a regulatory posture that is now being litigated rather than supervised.

MGM and Caesars have concluded that the jurisdictional uncertainty is a licence risk they cannot price. That is a rational reading by operators whose Nevada licences depend on relationships with state regulators who view prediction market operators as competitors running illegal books. The casino executives are not wrong that the risk exists. They are, I think, wrong about how durable it is. If federal preemption holds — and I believe the statutory text gives the CFTC more ground than its critics are currently crediting it with — the licence risk does not survive the first clean appellate ruling in the Commission's favor.

The standard that will resolve this is whether a contract offered on a CFTC-designated contract market constitutes a "swap" or "event contract" within the meaning of the Commodity Exchange Act such that state gambling laws are preempted under the Supremacy Clause — or whether the sports carve-out provisions of Dodd-Frank preserve state authority over contracts whose underlying event is a sporting contest.