Gaming industry groups look to Congress for ban on sports-event contracts

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The Backstory

Prediction markets push a state-federal fight into Congress

The gaming industry’s latest appeal to Congress reflects a dispute that has moved quickly from a niche derivatives issue to a direct challenge to the U.S. sports betting system. Sports-event contracts, offered by prediction markets regulated by the Commodity Futures Trading Commission, have drawn opposition from state gambling regulators, tribal gaming interests and casino operators that say the products function like sports wagers without the same licensing, tax or consumer-protection obligations.

The fight has intensified as platforms such as Kalshi have defended their products as federally regulated event contracts rather than gambling. That distinction matters because legal sports betting in the U.S. is regulated state by state, with operators required to obtain licenses, restrict access by age and location, contribute tax revenue and comply with responsible gambling rules. Prediction markets argue they operate under a different framework, using financial contracts that trade based on the probability of future events.

The current push by gaming groups is an attempt to resolve that conflict at the federal level. If Congress explicitly bars sports and casino-style event contracts, the industry’s state-based model would be protected from a new class of competitors. If lawmakers do not act, prediction markets could continue to test the limits of federal commodities law while states fight them in court one jurisdiction at a time.

Trade groups shifted from warnings to legislative demands

The letter to the Senate follows an earlier campaign by the American Gaming Association and the Indian Gaming Association, which urged Congress to address sports event contracts as part of broader work on market structure legislation. In that appeal, the groups described the products as “indistinguishable from legal sports betting” and said prediction markets had expanded rapidly since launching sports markets in January 2025.

The concern was not limited to single-game outcomes. The associations said platforms had begun moving toward parlay-style offerings and possible markets connected to college sports developments, including transfer portal activity. That expansion sharpened industry fears that prediction markets could replicate a sportsbook product mix while avoiding state gambling oversight.

The timing also placed pressure on the CFTC. The regulator has authority over designated contract markets, but gambling stakeholders argue it was not designed to police sports betting, problem gambling or youth access. During his confirmation process, CFTC Chairman Michael Selig indicated the commission would follow any congressional directive, even as he signaled the agency itself would not necessarily move to eliminate sports-event contracts. That opened the door for gaming groups to press lawmakers to define the boundary.

The industry’s argument has since broadened. It now ties prediction-market sports products to lost state tax revenue, tribal sovereignty, local control and consumer protection. By framing the issue as a threat to the regulatory compact that followed the U.S. Supreme Court’s 2018 sports betting decision, gaming groups are seeking to make the matter about more than competition.

State regulators have tried to stop Kalshi in court

While the industry lobbies Washington, state regulators have pursued enforcement actions against prediction markets. Kalshi has become the central test case because it has continued to argue that the Commodity Exchange Act gives the CFTC exclusive authority over its contracts and pre-empts state gambling laws.

That argument has produced mixed results. In Tennessee, a federal judge temporarily blocked an attempt to halt Kalshi sports event contracts after the state sports wagering regulator sent cease-and-desist letters to Kalshi, Crypto.com and Polymarket. The Tennessee Sports Wagering Council had demanded that the platforms stop offering sports-linked event contracts, void existing positions and refund deposits, with potential fines and criminal referrals for noncompliance.

Kalshi’s position in that case mirrored its broader strategy: It said it was registered with the CFTC and therefore not subject to state gambling enforcement. The court order did not end the legal debate, but it gave prediction markets momentum by preventing immediate state action while the case proceeded.

Kalshi has also gone on offense. In Montana, the company sued state officials over attempts to regulate event contracts after a cease-and-desist letter alleged its activities amounted to illegal gambling. The lawsuit again argued that event contracts are derivatives whose value is determined by market activity, not traditional bets placed against a sportsbook. States counter that the economic label does not change the consumer experience when the contract turns on the outcome of a sports event.

Nevada underscored the risk to gambling regulators

Nevada’s actions show why gaming regulators see urgency in the issue. The state, long the center of U.S. gambling regulation, secured a short-term ban on some Kalshi contracts tied to sports, elections and entertainment. The Nevada court order required Kalshi to stop offering affected products in the state unless it obtained gambling licenses and restricted access to users 21 and older.

The case was especially significant because Nevada regulators framed the contracts as unlicensed gambling under state law. Kalshi, in turn, maintained that CFTC oversight was sufficient and that states could not impose a separate licensing regime on federally regulated markets. The temporary order forced Kalshi users in Nevada to close out existing positions but barred them from opening new ones in affected categories.

Nevada’s intervention illustrated the practical stakes. If prediction markets can offer sports contracts nationwide under federal authority, state regulators may have limited ability to enforce age limits, location restrictions and responsible gaming rules. If states prevail, prediction markets would need either to withdraw sports products from key markets or seek licenses similar to sportsbooks.

That uncertainty has created a patchwork of litigation and enforcement. Some courts have temporarily protected Kalshi; others have been more receptive to state gambling arguments. For operators, the result is legal risk and inconsistent access. For regulators, it is a potential weakening of rules that took years to build after states legalized sports wagering.

The CFTC has sought guardrails but not a clear prohibition

The CFTC’s own actions have added complexity. The agency issued guidance to prediction markets on sports event contracts, warning designated contract markets to assess products that may be vulnerable to manipulation. Contracts tied to the performance or actions of a single player were identified as especially risky because one person could influence the result.

That guidance suggested the CFTC is aware of the integrity concerns that sports leagues, regulators and gaming companies have raised. It also showed the agency trying to build a framework rather than impose an outright ban. The regulator has sought public feedback on insider information, investor protections and sensitive markets, while holding discussions with sports leagues.

For the gaming industry, that approach is inadequate. State-regulated sportsbooks operate under rules intended to detect suspicious betting, bar underage users, support responsible gambling programs and pay taxes in the jurisdictions where bets are accepted. A financial-market framework may address market manipulation, but it does not necessarily account for gambling addiction, tribal-state compacts or state budget reliance on wagering revenue.

The CFTC’s posture also leaves prediction markets with room to innovate. If sports contracts are generally permitted, platforms can design markets around game outcomes, tournament results or other sports developments while avoiding the vocabulary of betting. That is why gaming groups are urging Congress to draw a statutory line before the product category becomes entrenched.

The outcome could reshape legal sports betting

The dispute now turns on whether lawmakers view sports-event contracts as financial innovation or regulatory arbitrage. Prediction markets say they provide exchange-traded tools for forecasting and hedging outcomes, with buyers and sellers taking opposite sides rather than betting against the house. Gaming interests say that distinction is formal rather than practical when consumers can stake money on the same outcomes offered by sportsbooks.

The stakes extend beyond Kalshi. Polymarket, Crypto.com and other platforms have been drawn into enforcement scrutiny, and the product category could expand if courts and regulators validate the federal model. A national market for sports contracts would represent a major shift from the state-by-state sports betting structure that has governed the industry since legalization spread across the country.

For Congress, the question is whether to preserve that structure by amending market legislation to exclude sports and casino-style contracts. For the CFTC, the challenge is whether it can oversee fast-growing event markets without becoming a de facto gambling regulator. For states and tribes, the fight is about authority, revenue and the integrity of local gambling policy.

The industry’s Senate letter is therefore not just a request for clarification. It is an effort to stop a parallel sports wagering market before it becomes too large for state regulators to contain.