CFTC Proposes Rules Allowing Sports Prediction Contracts

The U.S. Commodity Futures Trading Commission on Wednesday released a draft rule that would generally permit sports-event prediction contracts under a public-interest standard while excluding contracts likely to invite manipulation.

The draft distinguishes between markets tied to aggregate outcomes and those tied to contestable outcomes. Contracts based on final scores, team win-loss records and season statistics are described as presumptively permissible because they can reflect collective expectations. Contracts tied to player injuries, officiating decisions or other outcomes that individual participants could influence are flagged as unlikely to meet the public-interest test.

The proposal frames prediction markets as an asset class and takes a principles-based approach. Rather than approving all contracts at once, the CFTC would evaluate each contract on a case-by-case basis against the public-interest standard. The agency opened a 45-day public comment period on the draft.

A partner at Cahill Gordon & Reindel LLP wrote that the proposal does not offer a blanket approval. He noted the draft defines ‘gaming’ more broadly than expected and treats contracts settling on aggregate outcomes as presumptively permissible.

The draft also states election-related contracts are not classified as gaming under the relevant federal law, a clarification that could reduce legal risk for platforms that have offered political markets. Regulators reiterated concern about any contract where participants could affect the underlying event, saying such contracts are unlikely to pass the public-interest test.

Industry participants that grew during the 2024 presidential cycle have expanded their services. One exchange moved into markets tied to future private company valuations through a partnership with Nasdaq. Another platform reached agreements to supply real-time market data to major news organizations. Draft language notes growing investor interest and institutional use of binary-outcome contracts as alternative hedges.

A Georgetown University law professor observed that prediction markets have formed new partnerships with news organizations and that a remaining question is whether event contracts should be treated as financial instruments or as gambling.

If finalized, the rules would provide more clarity for product design, compliance and participation by institutional investors. The CFTC will review comments submitted during the 45-day period before deciding next steps.