Sports event contracts drove four-fifths of CFTC swap volume in August

In August, sports event contracts accounted for roughly four-fifths of all trading volume on CFTC-registered prediction exchanges — around $1.2 billion of a $1.5 billion monthly market. That number is not in the NFL's brief. It is not in the state attorneys general's petition. It is the fact that makes the jurisdictional argument make sense, and it is the reason Michael Selig moved on October 9 rather than waiting for the Supreme Court to set its own schedule.

Selig filed two rules simultaneously. The first proposes to bring event contracts — sports, politics, weather, culture — formally within the federal swap definition under the Commodity Exchange Act. The second, an interim final rule effective on Federal Register publication, cuts in the opposite direction: traditional sportsbook wagers and casino games are excluded from that same definition. The structural test the CFTC uses to draw the line is clean enough: if a bookmaker sets odds and accepts bets directly, it is gambling. If buyers and sellers set prices through an exchange, it is a derivative. Same underlying event. Different regulatory universe.

The move is defensible on its own terms. I have watched regulators race to publish before adverse rulings before, and this has the same shape — get the administrative record in place while you still control the pen. With the Supreme Court weighing whether to take Flaherty v. KalshEX, and gaming regulators from 39 states already on record urging the Court to do so, Selig is trying to make the federal claim harder to unwind. A codified rule is more durable than a chairman's interpretive letter.

The consensus read in Washington is that this strengthens the CFTC's hand. I think that reading is partially correct and partially too comfortable.

Here is what it misses. The interim rule on sportsbook exclusion is where the real exposure sits, not the proposed swap definition. The structural test — exchange-traded versus bookmaker-set — is clear at the edges but genuinely ambiguous in the middle. Sporttrade closed five state licences to pursue federal exchange status. If an operator built to look like an exchange can migrate into the CFTC's jurisdiction by changing its business model, then the line between the two rules is not as stable as Selig's language implies. A 30-day comment period on a rule already in effect does not resolve that. It flags it.

I carry a known bias toward the downside scenario, and I am adjusting for it here: the likelier outcome is that the CFTC's dual filing survives initial court scrutiny and gives the commission the administrative record it needs at the Supreme Court. The interim rule on gambling exclusion is probably durable. The proposed swap definition faces a longer road through comment, litigation, and a court that has shown, since Loper Bright, that it will not defer to agency interpretation the way it once did.