CFTC seeks to define and delineate event contracts and gambling

• The CFTC has put forward a new proposal and a new interim rule to help define event contracts
• The interim rule directly excludes casino-style gambling from prediction market platforms
• The proposal seeks to apply a swap status to event contracts, including those on sports, politics, entertainment and the weather

The Commodity Futures Trading Commission (CFTC) has put forward two new measures that will seek to finally distinguish between gaming products and swaps as defined by federal laws.

The measures, pitched last week, seek to end state-level conflicts where gaming regulators, lawmakers, and prosecutors are going after prediction markets and specifically event contracts, arguing that the latter offer unauthorized gambling.

New proposal wants to classify event contracts as swaps

The CFTC has published both measures on its website and will now take public comment over the next 30 days. With the first measure - a proposal- the regulator is specifically looking to expand the definition of "swap" to now specifically include event contracts, and tie those to sports, politics, cultural events, and the weather.

In other words, sports event contracts could be officially recognized as a federally regulated swap, which is the kernel of the current legal predicament, with state gaming regulators arguing the opposite.

The CFTC’s Chairman, Michael Selig, wrote: "These products are commodity derivatives squarely within the CFTC's regulatory remit under the Commodity Exchange Act and are within the agency's exclusive jurisdiction."

The second measure, an interim final rule, states that casino-style gambling products, including sportsbook wagers and casino games, are not swaps, placing them outside the CFTC’s jurisdiction. In effect, the CFTC is drawing the line between event contracts, which it claims are federally regulated derivatives, and traditional sports bets, which it leaves to the states and tribes.

Gambling on prediction markets is a no-go

"Casino-style gambling products are not derivatives," Selig added. However, the CFTC is de facto trying to delineate between event contracts specifically and traditional sports bets, treating the latter as outside of its remit, while event contracts, potentially granted the legal status of swaps, are within it.

This could help settle some of the ambiguity around CFTC rules, but it is unlikely to lessen state zeal in trying to push back against prediction markets. While the categorization of swaps of event contracts could clarify matters for the CFTC and show a clear stance, the issue remains that states often argue that prediction markets are, in fact, gambling when they pertain to sports bets.

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