Polymarket and Kalshi: Not Casinos? CFTC Draws Red Lines with Dual Framework: Event Contracts Classified as Swaps, Bookmakers' Bets Considered Gambling

The regulatory battle between the U.S. prediction markets and the gambling industry has finally seen a clear classification framework proposed by the CFTC.

The CFTC has released a rule proposal that aims to explicitly classify event contracts related to sports, elections, culture, and weather as swaps, asserting that these products fall under financial derivatives as defined by the Commodity Exchange Act. Generally, investors wishing to trade such swaps must do so through a Designated Contract Market (DCM) regulated by the CFTC.

At the same time, the CFTC has issued a temporary final rule excluding traditional betting offered by sports bookmakers and casinos from the definition of swaps. In other words, even if both products are linked to the outcome of the same event, they may be regulated differently under federal derivatives law and state gambling law due to their differing trading methods.

The Red Line is Not "What to Bet On," but Who Sets the Price and Whether It Can Be Resold

The core difference proposed by the CFTC is not whether the contract is for a sports game, an election, or the weather, but rather the market structure.

Traditional sports betting typically involves bookmakers acting as the "house," unilaterally setting odds and engaging in bilateral transactions with each customer. Bettors can only accept the terms set by the bookmaker, and the related bets usually cannot be resold on the open market like financial assets.

In contrast, prediction markets like Kalshi and Polymarket US employ a multi-sided market model, where prices are formed through competitive bidding among multiple buyers and sellers, and holders can sell their positions before the event outcome is revealed.

Consequently, the CFTC has established two gambling exclusion tests: the product must be provided by operators regulated by state or federally recognized tribal gambling authorities; the product cannot be bought or sold on exchanges, swap execution facilities, or other multi-lateral trading markets. Only casino or sports betting products that meet both criteria will be explicitly excluded from the definition of swaps.

This means that the same NFL game may simultaneously have two sets of legal products: one with fixed odds set by a bookmaker, which is considered gambling, and another result contract that is bid on by market participants and can be bought and sold mid-way, which may be viewed as a financial swap.

Sports Contracts Account for 80%, Central to Regulatory Disputes

CFTC documents indicate that as of September 1, 2026, at least seven CFTC-registered designated contract markets are offering event contracts; since 2025, over 15 designated contract markets have applied and are awaiting processing.

According to data reported to the CFTC by trading venues, the trading volume of event contracts in August 2026 was approximately $1.5 billion, with sports event contracts accounting for about $1.2 billion, or roughly 80% of the total; political and election contracts accounted for about $11 million; and weather event contracts accounted for about $4 million.

The data reflects that the regulatory conflict between prediction markets and the gambling industry primarily revolves around the rapidly growing scale of sports contracts, rather than political elections or economic data.

Inclusion as Swaps Does Not Automatically Approve All Contracts

Even if event contracts are ultimately formally defined as swaps, it does not mean that platforms can freely list any topic.

CFTC-registered markets must still demonstrate that the relevant contracts are not easily manipulable and establish market monitoring, abnormal trading detection, and participant protection mechanisms. Markets involving player injuries, referee decisions, or outcomes that can be directly controlled by a few individuals may still face restrictions due to manipulation risks.

This is also the regulatory exchange the CFTC is attempting to establish: platforms may gain federal regulatory certainty but must simultaneously bear compliance obligations closer to those of financial exchanges than traditional bookmakers.

The Dispute Between State Governments and the CFTC is Not Over

The CFTC hopes to confirm through new regulations that event contracts fall under its exclusive federal jurisdiction, but there are still significant discrepancies in the courts.

The U.S. Court of Appeals for the Third Circuit previously found that Kalshi's sports event contracts met the definition of swaps; however, the Ninth and Sixth Circuits ruled otherwise, determining that the relevant products are essentially closer to sports betting or do not meet the Commodity Exchange Act's definition of swaps.

Therefore, even if the CFTC ultimately finalizes the rules, state governments, tribal gambling authorities, and traditional sports bookmakers may still file lawsuits. The unresolved question remains: after the CFTC defines the products as financial swaps, is that sufficient to exclude the applicability of state gambling laws?

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