44 State AGs Challenge CFTC Authority Over Sports Prediction Markets

The Commodity Futures Trading Commission headquarters in Washington, Dec. 23, 2022. Ting Shen | Bloomberg | Getty Images

A coalition of 44 state attorneys general sent a letter to the Commodity Futures Trading Commission on Monday, arguing that the agency lacks the authority to regulate sports-related event contracts on prediction market platforms.

The letter arrived as the public comment period for the CFTC's first proposed rule on prediction market regulation expired Monday evening. The proposed rule primarily focuses on exchanges' sports offerings.

Key Arguments from the States

"The Proposed Rule goes beyond the CFTC's statutory powers, is in tension with the Constitution, and would otherwise be arbitrary and capricious in its current form," wrote the coalition, led by Ohio Attorney General Andy Wilson. "The CFTC should start afresh with its rulemaking and clarify that sports bets and gambling cannot be traded on [designated contract markets], but are instead subject to state law."

States that did not sign the letter:

• Florida
• Georgia
• New Hampshire
• Missouri
• Texas

The Jurisdictional Battle

States and the CFTC have been locked in a jurisdictional battle since prediction market exchange volumes surged last year, driven primarily by the popularity of sports-related contracts. The 2026 FIFA World Cup pushed platform volumes to new heights.

• CFTC position: All event contracts are swaps — a derivative regulated by the commission.
• State position: Sports-related contracts closely resemble sports betting, which falls under state jurisdiction.

Watch now VIDEO 7:52 07:52 How event contracts are testing Wall Street’s regulators Markets and Politics Digital Original Video

The Proposed Rule and Industry Pushback

In June, the CFTC released the first draft of its proposed rule on regulating prediction markets, heavily focusing on controversial sports-related event contracts, including which ones may be prohibited.

The rule also crafted a definition for "gaming," describing it as an activity done for recreation or entertainment, governed by rules, and based on measurable outcomes determined by skilled activity during the activity.

CME Group's objection: In its own letter to the CFTC, derivatives marketplace CME Group disagreed with this definition.

"By defining 'gaming' as the sport itself rather than the financial wagering on the sport, the CFTC's definition suggests the [Commodity Exchange Act] is preempting state sports regulations, which is a striking overreach," wrote CME General Counsel Jonathan Marcus.

Ongoing Litigation

The CFTC has used federal preemption as an argument in court proceedings across the U.S. against states, defending what it sees as its exclusive jurisdiction to regulate prediction markets. The commission is currently in litigation with nine states nationwide to uphold that position.

While the CME is concerned about federal regulation of sports-related event contracts, the exchange acts as ...