House Hearing Exposes Deep Divide Over Sports Prediction Markets
Congress mustn’t stay on the sidelines whereas courts, state regulators and the Commodity Futures Trading Commission (CFTC) struggle over the way forward for sports activities prediction markets, the chairman of a House Agriculture subcommittee mentioned Tuesday.
The listening to supplied no clear consensus on whether or not sports activities occasion contracts ought to be handled as federally regulated derivatives or playing merchandise topic to state and tribal legal guidelines. But members from each events repeatedly questioned whether or not the prevailing framework adequately protects youthful merchants and prevents insider buying and selling and manipulation, in addition to whether or not the understaffed CFTC has sufficient capability to supervise the rising market.
“The fee is appearing on this area,” Subcommittee Chairman Dusty Johnson (R-S.D.) mentioned in his closing remarks. “I don’t imagine that the committee, that Congress, ought to be silent. I do suppose there’s work for us to do right here.”
The listening to, titled “Examining Customer Protections and Market Integrity in Sports Event Prediction Markets,” introduced collectively attorneys and a market-surveillance professional who defended the CFTC’s authority alongside representatives of the American Gaming Association (AGA) and Indian Gaming Association (IGA), who argued that platforms reminiscent of Kalshi and Polymarket are utilizing federal registration to function what quantity to nationwide sportsbooks.
The sharpest disputes centered on whether or not the Commodity Exchange Act (CEA) preempts state playing legal guidelines, the battle between a Michigan courtroom order and a subsequent CFTC emergency directive, and the promotion of sports activities contracts to clients as younger as 18. Johnson mentioned Tuesday’s listening to wouldn’t be Congress’ final examination of prediction markets and recognized CFTC assets, market integrity and buyer safety as points the committee nonetheless must discover.
Are sports activities contracts derivatives or bets?
The central disagreement was whether or not sports activities occasion contracts are a brand new class of federally regulated monetary product or just sports activities wagers supplied underneath a distinct title.
Christopher Cylke, senior vice chairman of presidency relations on the AGA, instructed lawmakers the financial substance of the merchandise issues greater than the terminology platforms use to explain them.
“Let’s be clear — so-called sports activities occasion contracts are sports activities betting,” Cylke mentioned. “A buyer places cash on a sports activities end result and will get paid if they’re appropriate. Forty-one state attorneys common agree. These merchandise are sports activities betting and have to be topic to state playing legal guidelines.”
Carl Kennedy, a derivatives accomplice at Katten Muchin Rosenman, rejected that premise. He argued that Congress deliberately wrote the CEA broadly sufficient to cowl new merchandise traded on federally regulated exchanges.
“That’s why Congress wrote the phrases commodity and swap broadly,” Kennedy mentioned. “Not as a result of it wished a free-for-all, however as a result of it knew new merchandise would maintain displaying up, and it wished the CFTC to be prepared for them. Making room for that sort of innovation is strictly what Congress demanded of the CFTC.”
“Sports occasion contracts are simply the most recent product to stroll by that door,” Kennedy added.
Robert Schwartz, a Morgan Lewis & Bockius accomplice who beforehand served as CFTC common counsel, equally argued that federally registered exchanges function inside a complete derivatives framework, not exterior regulation altogether.
States and tribes warn of “backdoor sportsbooks”
Cylke mentioned the dispute has unfold throughout the nation as a result of prediction market platforms are utilizing CFTC registration to bypass the state-by-state methods governing authorized sports activities betting.
“Litigation has reached 9 federal appeals courts, and lawmakers throughout the nation are responding for one easy motive: These platforms are operating backdoor sportsbooks,” he mentioned.
IGA Chairman David Bean made an analogous argument on behalf of tribal gaming pursuits, warning that nationwide sports activities occasion contracts threaten authority states and tribes negotiated by the Indian Gaming Regulatory Act (IGRA) and tribal-state compacts.
The classification dispute carries penalties far past terminology. It determines whether or not platforms should get hold of licenses in every state, whether or not clients typically have to be 21 to make use of a sportsbook or 18 to commerce on a prediction market, which consumer-protection and responsible-gaming/buying and selling requirements apply and whether or not state and tribal regulators can forestall the contracts from being supplied inside their borders.
Gaming income continues to develop regardless of diversion claims
Cylke and Bean additionally argued that sports activities prediction markets are diverting enterprise from state-regulated sportsbooks and tribal gaming operations whereas avoiding taxes, licensing charges and revenue-sharing obligations.
“Sports betting on prediction markets like Kalshi and Polymarket makes a mockery of congressional intent, is stripping your constituents of essential client protections, and costing your communities a fortune in misplaced tax income,” Cylke mentioned.
The AGA, Cylke mentioned, estimated that states and tribes have misplaced greater than $1.2 billion in gaming tax income since prediction markets started providing sports activities occasion contracts.
“This sum is snowballing by the day, and that cash ought to be supporting training, infrastructure, public security, responsible-gaming packages, and tribal communities,” Cylke mentioned.
But regulated gaming income has continued to develop alongside prediction markets. The AGA reported that industrial gaming income reached a file $78.7 billion in 2025, up 9.2% from the earlier yr. Sports betting income elevated 22.8% to just about $17 billion, whereas taxes generated by state-regulated sportsbooks climbed 32.4% to $3.71 billion.
The National Indian Gaming Commission also reported Tuesday that tribal gaming income elevated 5.3% to a file $46.2 billion in fiscal yr 2025.
Those figures don’t rule out income diversion, significantly as a result of sports activities occasion contract buying and selling expanded considerably in 2026 and the cited income totals cowl 2025. Sportsbooks, tribes and state governments might nonetheless be gathering extra within the absence of prediction markets. But the file outcomes present little proof, a minimum of up to now, of a broad contraction in regulated gaming.
Prediction markets open sports activities buying and selling to youthful clients
The dispute additionally prolonged to who can use the platforms. CFTC-regulated prediction market platforms typically allow clients at 18, whereas practically all state-regulated sportsbooks require customers to be a minimum of 21.
“Marketing sports activities contracts as investing can also be deceptive and harmful,” Cylke mentioned, “particularly for youthful shoppers who could imagine betting on sports activities is a monetary technique moderately than leisure with an actual danger of loss.”
Bean accused prediction market operators of concentrating on youthful clients by social media and presenting sports activities buying and selling as a solution to earn money.
“Prediction markets goal younger folks and people in jurisdictions the place sports activities betting is prohibited,” Bean mentioned. “They promote on TikTok and rent influencers who declare that they’re a aspect hustle with out revealing the true dangers of playing.”
“In truth, one CEO tried to equate sports activities contracts to monetary literacy,” he continued. “This is each deceptive and harmful. Today, because of a one-person company, each teenager with a smartphone can now lose their shirt with out leaving their home or dorm room. We’re solely beginning to see the devastating influence on our youngsters’ psychological well being and monetary safety.”
Supporters of prediction markets disputed the broader declare that the platforms function with out buyer safeguards. Asked whether or not CFTC-regulated exchanges lacked age verification, know-your-customer (KYC) guidelines and integrity monitoring, Asaf Meir, co-founder and CEO of Solidus Labs, mentioned that had not been his expertise.
“CFTC-regulated venues are gathering all the knowledge you’ve simply talked about,” Meir mentioned. “In truth, they compile it into a bigger superset of knowledge to grasp whether or not or not market manipulation is going down.”
Single-actor contracts elevate manipulation considerations
Members additionally targeted on whether or not sure sports activities contracts are particularly susceptible to manipulation or insider buying and selling, significantly markets the place a single participant, official or different participant can affect the result.
Meir mentioned monitoring turns into harder when exchanges supply quite a few associated contracts across the identical recreation or match.
“That’s really comparatively easy to resolve,” Meir mentioned of monitoring a person market. “But the complexity arises within the associated sports activities contracts. So round each match, there are a number of different occasion contracts that basically develop the assault floor the place you additionally want to have the ability to correlate these contracts to the principle occasion contract, then whether or not or not unhealthy actors are presumably manipulating cross-product in that regard.”
Kennedy mentioned the CFTC has directed exchanges to deal with these dangers when submitting contracts for overview.
“The fee has made clear, not solely within the proposal that it launched in June, but in addition in an advisory that it issued in, I imagine, March of this yr, that they do count on that these self-certifications be complete, to clarify the dangers, to deal with settlement dangers, particularly round single-actor contracts, that the one actor might affect inappropriately the result of the occasion contract and the settlement of that contract,” Kennedy mentioned.
Kennedy mentioned the CFTC’s proposed occasion contract rule distinguishes between contracts on broad sporting outcomes and people involving “single actors or integrity-sensitive sporting occasions,” together with accidents and officiating choices.
Lawmakers query whether or not the CFTC has sufficient assets
Even witnesses who defended the CFTC’s authority confronted questions on whether or not the company has sufficient folks, experience and management to supervise quickly increasing prediction markets alongside its conventional tasks.
Ranking Member Angie Craig (D-Minn.) famous that the CFTC lowered its workforce by 20% final yr whereas the company took on rising tasks involving prediction markets and digital property. She additionally emphasised that present CFTC Chairman Michael Selig stays the company’s solely commissioner.
“If somebody tries to inform me that within the seven months that Mr. Selig has been chairman of the company, that they’ve acquired all of the experience mandatory to grasp and surveil these completely different occasions traded on prediction markets, together with sports activities, frankly, I wouldn’t imagine them,” Craig mentioned.
“If we would like protected markets, if we would like innovation with out exploitation, if we would like risk-management instruments that serve all Americans, then we should give the CFTC the workers and the funding it must do its job,” she added.
Chairman Johnson agreed that the fee wants extra members.
“Of course, you’re precisely proper about us needing extra CFTC commissioners,” Johnson mentioned. “One is — Chairman Selig is great, however we’d take 4 extra.”
Rep. Shomari Figures (D-Ala.) equally warned that including new tasks with out growing the company’s capability might weaken its oversight elsewhere.
“If we proceed to develop the company’s tasks with out increasing its capability, one thing inevitably will get left behind,” Figures mentioned. “And for the farmers, companies, shoppers, and buyers who depend on these markets, that’s merely unacceptable.”
Michigan orders put Kalshi within the center
The conflict between federal and state authority turned concrete when Rep. Kristen McDonald Rivet (D-Mich.) questioned witnesses about conflicting directives issued to Kalshi in Michigan.
A state courtroom ordered Kalshi to shut sports activities occasion contract positions held by Michigan residents. Kalshi had already unwound the contracts by the point the CFTC invoked its emergency authority and directed the trade to protect the positions and permit them to settle usually.
“The chairman has each proper to disagree,” McDonald Rivet mentioned. “But he didn’t simply urge them to attraction. He issued an order forcing Kalshi to defy the courtroom’s orders, which put Kalshi in a very unenviable place of getting to decide on between ignoring a courtroom order or ignoring a fee order, each of which really put Kalshi liable to civil penalties.”
Schwartz known as the CFTC’s intervention “a unprecedented motion” that confirmed the necessity for clearer traces of authority, noting that it had been 46 years for the reason that fee had issued an order underneath its emergency authority.
“An trade like Kalshi is caught in the course of its federal regulator and a courtroom order,” Schwartz mentioned. “I don’t know what one of the best recommendation could be.”
Johnson outlines 4 areas for motion
Johnson closed the listening to with 4 takeaways, starting with questions on whether or not the CFTC has enough assets to supervise the rising market.
“Number one, the CFTC does have some essential work earlier than it,” Johnson mentioned. “It is used to doing extra with much less, and but I do suppose useful resource adequacy is a official query the committee ought to proceed to discover.”
His second level was that the opposing sides agreed concerning the objectives, whilst they differed sharply over the right way to obtain them.
“Everybody agrees concerning the significance of market integrity and buyer safety,” Johnson mentioned.
That led to his third takeaway, that Congress should decide whether or not regulators have already got the authority and assets wanted to fulfill these objectives.
“I do suppose this subcommittee must proceed to discover whether or not or not there are enough instruments to make sure market integrity and buyer safety,” Johnson mentioned.
Johnson’s ultimate level was that Congress mustn’t stay silent whereas the CFTC and courts form the market’s regulatory future. He mentioned the committee would proceed on the lookout for widespread floor and figuring out whether or not extra laws was mandatory.
“This won’t be the final listening to we have now on this area,” Johnson mentioned. “I believe we have now an obligation to attempt to drive towards discovering out what’s the widespread floor.”
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