CFTC Reverses Course on Biden-Era Ban Targeting Political and Sports Prediction Markets
The agency has officially retracted a proposal from the Biden administration that aimed to prohibit prediction markets focused on political events and sports, confirming no final regulations will be implemented.
On Wednesday, the newly confirmed chairman of the CFTC, Mike Selig, announced the agency's decision to retract a notice of proposed rulemaking from 2024 that attempted to prohibit event contracts covering sports, political events, and war-related topics, among other subjects. The agency had designated these contracts as being "contrary to the public interest."
According to Selig, the withdrawn proposal "reflected the prior administration's frolic into merit regulation with an outright prohibition on political contracts ahead of the 2024 presidential election." He further stated that the CFTC has no intention of moving forward with final rules based on this proposal.
The Commission is withdrawing that proposal and will advance a new rulemaking grounded in a rational and coherent interpretation of the Commodity Exchange Act that promotes responsible innovation in our derivatives markets in line with Congressional intent.
This represents the most recent regulatory action by the agency that directly impacts prediction market platforms like Polymarket and Kalshi. These platforms have experienced explosive growth in user adoption due to their offerings that enable wagering on diverse events, with sports betting being particularly prominent.
These prediction market platforms, which also include services provided by major cryptocurrency exchanges Coinbase and Crypto.com, are currently embroiled in legal disputes with several state governments. These states contend that the platforms are operating as unlicensed gambling operations. The platforms have vigorously contested these allegations, maintaining that their operations fall under the exclusive regulatory jurisdiction of the CFTC.
CFTC takes down staff letter on sports event contracts
In addition to withdrawing the proposed rulemaking, Selig announced that the CFTC has also rescinded a staff letter issued in September. That letter had served as a reminder to entities under CFTC regulation about their responsibilities when enabling sports event contract trading and emphasized the importance of preparing for potential legal proceedings.
The September letter, which was released in the period leading up to a potential US government shutdown, instructed regulated entities that they should "be prepared for all foreseeable conditions that may result from facilitating the trading and clearing of sports-related event contracts."
Furthermore, the letter acknowledged that CFTC staff members were fully aware of multiple regulatory enforcement actions and legal proceedings initiated by state authorities concerning sports event contracts.
The staff advisory cautioned that companies operating in this space needed to be ready to confront such regulatory and legal challenges through "appropriate contingency planning, disclosures, and risk management policies and procedures."
In his statement, Selig explained that while the advisory "intended to highlight litigation considerations," it had "inadvertently created confusion and uncertainty for our market participants."
"I look forward to working with staff on an event contracts rulemaking," he added.