The U.S. Commodity Futures Trading Commission (CFTC) has unveiled new regulations aimed at restricting prediction market contracts related to war, terrorism, and assassination. Conversely, the commission has proposed significant allowances for prediction markets focused on sports outcomes, accelerating the integration of the rapidly expanding prediction market industry into the regulatory framework.
Bloomberg reports that on Wednesday, the CFTC released a draft regulation for event contracts. Prediction markets allow participants to wager on the outcomes of future events, such as elections, sports games, economic indicators, and international affairs. Platforms like Kalshi and Polymarket are leading players in this space.
Under the proposed regulations, the CFTC plans to implement more rigorous scrutiny for contracts related to war, terrorism, and assassination.
However, the commission has narrowly defined the key category of gaming, which has driven the rapid growth of sports-related contracts, as games determined by pure luck. Bloomberg anticipates that this interpretation will enable many currently traded sports prediction contracts to continue operating outside regulatory oversight.
CFTC Chairman Michael Selig stated that the CFTC will safeguard the integrity of regulated markets while fostering responsible innovation.
This regulatory proposal comes amid explosive growth in the prediction market industry. Following a federal court’s approval of Kalshi’s election betting contracts ahead of the 2024 U.S. presidential election, the market has expanded rapidly. It now facilitates tens of billions of dollars in transactions monthly, including sports prediction markets.
However, debates persist over whether sports prediction markets essentially constitute sports betting. Critics have also raised ethical concerns regarding contracts related to events like assassinations or terrorism. The CFTC specifically highlighted that contracts whose outcomes can be influenced by in-game events or individual actions carry a high risk of manipulation.
Bloomberg reports that some market participants view this regulatory proposal as potentially beneficial for industry growth. While sports betting regulations currently vary by state in the U.S., prediction markets are classified as derivatives overseen by the CFTC.
If the new regulations are finalized, operators could expand their businesses under CFTC supervision, rather than navigating separate state regulations. Dean Sisson, Chief Executive Officer (CEO) of sports prediction market platform ProphetX, suggested this could encourage institutional investors to engage more actively in prediction markets as a new asset class.
Since Donald Trump’s presidency, the CFTC has demonstrated a more favorable stance toward prediction markets compared to the Biden administration.
However, significant opposition has emerged. Bill Miller, president of the American Gaming Association (AGA), criticized the proposal as an attempt to redefine sports betting. The public interest group Better Markets expressed concern that this would further blur the distinction between legitimate financial markets and gambling.
Donald Trump Jr., the former president’s eldest son, serves as an advisor for Kalshi and Polymarket. Meanwhile, Trump Media & Technology Group (TMTG) is pursuing its own entry into the prediction market business.
In South Korea, prediction markets are also gaining influence. During the June 3 local elections, Polymarket attracted millions of dollars in bets on the Seoul mayoral race and the political trajectories of potential presidential candidates, drawing attention as a comparative indicator alongside traditional polling data.