CFTC swap rule leaves sports contracts in a jurisdictional void

Michael Selig stood in front of a rule he needed to exist before the Supreme Court decided it shouldn't.

The CFTC's two proposals — one expanding the swap definition to cover event contracts, one explicitly carving casino-style gambling out of it — arrived in the Federal Register after clearing the White House's regulatory review office. The timing was not accidental. New Jersey's petition in Flaherty v. KalshEX is sitting with the nine justices, and 39 state gaming regulators plus the NFL have already filed briefs urging the Court to take it up. Selig's move was to make the CFTC's jurisdictional claim look settled before the Court decided whether to unsettle it.

It won't work that way, and the reason is structural. An agency cannot manufacture its own jurisdiction by defining its way into it. The swap classification gives the CFTC a hook under the Commodity Exchange Act, but the Court's interest in this case — if it takes it — will be precisely whether that hook holds against state authority. A proposed rule in the Federal Register is not a precedent. It is a filing.

The cleaner half of what Selig released is the exclusion of sportsbook wagers and casino games from the swap definition. That boundary is legally coherent and probably durable. Traditional gambling products operate under state licensing frameworks that predate the Commodity Exchange Act by decades. The CFTC was never going to win a fight to absorb DraftKings. Drawing that line explicitly gives the agency something it can defend.

The contested half is everything that isn't traditional gambling — the event contracts tied to politics, weather, sports outcomes, cultural events. Here the CFTC's position is that these are derivatives because they function like derivatives: they allow hedging, they aggregate information, they clear on a futures exchange. That is a reasonable description of what Kalshi does. It is also a reasonable description of a parlay, if you squint. The NFL's brief exists because the league understands that the line between a futures contract on a game outcome and a bet on a game outcome is exactly as clear as the regulator drawing it needs it to be.

Where I break from the consensus reading of this week's filings: most coverage treats the CFTC's dual proposal as a show of strength. I read it as a concession that the agency's prior informal position wasn't holding. You don't issue an interim final rule clarifying what you've always believed if what you've always believed was working. The Sixth Circuit loss that preceded this move matters more than the proposals themselves. Selig is trying to replace a circuit split with a regulatory record, and those are not the same thing.

The Supreme Court will read the administrative record when it considers the petition. What it will find is an agency that moved to codify its authority after losing in one circuit and winning in another. That sequence cuts against the CFTC's claim that jurisdiction was never in doubt.

Thirty-nine state gaming commissions signed a brief arguing states are better positioned to oversee sports contracts. The NFL said the same in different language. Selig is now the only named institutional voice on his side of this line, with no Senate allies on record and a court fight he entered by proposing rules rather than winning cases.