CFTC Proposes Framework for Prediction Markets, Opens Review of Sports Contracts

The proposal represents the agency's most comprehensive effort yet to define the boundaries of the growing prediction market industry, which has expanded from a niche corner of derivatives trading into a market offering thousands of contracts on elections, economic data, sporting events and other real-world outcomes.

Sector faces regulatory test

Event contracts allow users to buy and sell positions on the outcome of future events, with prices typically reflecting the market's estimate of an event's probability. The sector has grown led by prediction-market operators Kalshi and Polymarket, while companies including Crypto.com and Robinhood have also expanded into event-based trading products.

The agency is seeking public feedback during a 45-day comment period before deciding whether to adopt the framework, which would guide future reviews of prediction-market contracts. Under the proposal, the CFTC would establish a formal framework for determining whether event contracts tied to activities such as gaming, war, terrorism and unlawful conduct can be traded on regulated exchanges. 

The rulemaking follows a series of disputes over the legal status of prediction markets, particularly sports-event contracts. State gaming regulators and casino groups have argued that the products amount to sports betting operating outside state gambling frameworks, while the CFTC has maintained that the contracts are federally regulated derivatives that fall under its jurisdiction.

The sector has also brought questions about market integrity and the use of non-public information for insider trading. In one of the highest-profile cases, a trader placed profitable wagers on the removal of Venezuelan President Nicolás Maduro in January, shortly before the US announced an operation to capture Maduro and transfer him to the US to face criminal charges. In April, US federal prosecutors charged a Special Forces soldier with allegedly using classified information about the operation to place more than $33,000 in prediction-market bets, generating roughly $409,000 in profits. The case fuelled calls for clearer regulatory oversight.

Prediction markets are "experiencing rapid growth and facing ongoing interpretive challenges," the agency said in the proposal, arguing that the existing framework would benefit from "additional clarity, greater predictability, and a more focused articulation" of the standards used to review event contracts.

Kalshi said on 9 Jun that its enforcement programme conducted more than 150 investigations during the first quarter, blocked more than 100 potential insider trades through screening tools, referred more than 20 cases to law enforcement and imposed five disciplinary actions. The company said the new controls, which include market risk scoring and employment verification for certain traders, were developed following recommendations from an independent surveillance committee.

Sports markets in focus

Sports-event contracts are likely to be among the most closely watched aspects of the proposal.

The CFTC is proposing to formally define "gaming" as activities conducted for recreation or entertainment whose outcomes depend on participants' luck, skill or athletic ability. Under that framework, the agency draws a distinction between contracts settled by what happens during a sporting event and those tied to broader activities surrounding it.

For example, the proposal states that "an event contract on whether a football player will score a certain number of touchdowns in a game involves gaming" because its settlement depends on an occurrence during the game itself. By contrast, "an event contract on attendance at the football game does not involve gaming," because its outcome is determined by ticket-purchasing decisions rather than events on the field.

The distinction is significant because it would help determine which sports-related contracts fall under the CFTC's special review process. The agency said event contracts based on "the aggregate outcomes of professional or collegiate sports events" are "unlikely to be found to be contrary to the public interest" when listed on exchanges with appropriate surveillance and integrity controls.

According to the proposal, the number and diversity of event contracts have expanded dramatically since 2021, with more than 8,000 contracts trading in May 2026 alone. One platform expanded from roughly 1,600 contracts in April 2025 to approximately 162,000 by April 2026.

Any final framework could be revised significantly in response to comments from prediction-market operators, sports leagues, gaming interests and other stakeholders before taking effect.