Newly proposed rules to govern prediction markets would restrict bets that most regulated platforms in the U.S. don’t currently offer, like in-game props such as next pitch, markets on sports below the collegiate level, and officiating decisions. 

The 267-page notice of proposed rulemaking from the Commodity Futures Trading Commission, released Wednesday, largely leaves intact the game-outcome, player-performance, and season-long markets that have fueled the industry’s growth. Contracts tied to final scores, point differentials, win-loss outcomes, tournament advancement, individual and team statistical performance, and season-long performance metrics would remain permissible under the proposal.

The document defends the regulator’s position that it holds exclusive jurisdiction over prediction markets, including sports—the CFTC is actively suing six states that have sought to tamp down platforms’ ability to offer sports event contracts, while platforms like Kalshi, Robinhood, and Crypto.com are fighting dozens of lawsuits over their sports offerings. The issue is expected to eventually reach the U.S. Supreme Court.

“The CFTC is doubling down on the idea that they think sports are an area that falls within their jurisdiction,” former CFTC lawyer Carl Kennedy, who now works at law firm Katten Muchin, tells Front Office Sports.

In fact, the CFTC spends considerable time explaining why sports event contracts may provide economic value, pointing to their potential usefulness for advertisers, sponsors, broadcasters, venue operators, and other businesses seeking information about future events.

The proposal does outline potential restrictions, including with respect to event contracts on outcomes that could be easily manipulated, like markets tied to a specific player’s health, or those that would be similar to what got Guardians pitchers Emmanuel Clase and Luis Ortiz in trouble (the bets involved in their situation were placed on traditional sports betting platforms, not prediction markets). 

Other categories that could be flagged include anything tied to physical altercations, events involving participants below the collegiate level (such as high school and youth sports), and markets related to referee decisions, because they could be manipulated by a single official.

Under the proposal, if an event contract that has been self-certified by a platform raises concerns, the CFTC would be authorized to initiate a 90-day review of the market. The regulator would then have to issue an order approving or rejecting the contract within those 90 days. The CFTC can request that a platform suspend the market amid the review, but it’s not clear how enforceable that request would be in practice—meaning users could potentially continue betting on a market while it’s under review.

The worst fears of some prediction-market proponents did not come to pass. The CFTC is not proposing a blanket ban on prop bets or parlays, something its chairman, Michael Selig, did not rule out when speaking to FOS in April. 

What’s Next?

The proposal does not mean new rules have been implemented. Once the notice is published in the Federal Register, the public will have 45 days to offer additional comments to the CFTC. U.S. gaming attorney Dan Wallach—a fierce critic of sports event contracts—noted on social media that it appears the proposal will be published in the Federal Register on Friday, meaning the public comment period will run through July 27.

Depending on who you ask, the proposal is either a strong start toward properly regulated prediction markets, or window dressing that tries to push past the broader argument that sports event contracts should be prohibited outright because they’re too similar to traditional sports betting, which is regulated at the state level.

“I think the CFTC is trying to figure out a way to put in place the right guardrails or rules that are reasonable,” JB Mackenzie, VP and GM of futures and international at Robinhood, tells FOS.

“I don’t think it’s changing anyone’s mind who was predisposed toward an opinion,” says Melinda Roth, a professor of business, sports law, and corporate finance at Washington and Lee University. “But the clarifications, should people actually go through the document, are actually helpful.”

There are a number of different clarifications, including around statutory language that many observers on either side of the argument acknowledge is vague. The proposal attempts to define key terms like “gaming,” while laying out how the CFTC intends to determine whether a sports event contract is contrary to the public interest. 

Another notable clarification, according to Kennedy, is the CFTC makes very clear that exchanges are responsible for ensuring the markets they offer are not susceptible to fraud, manipulation, or insider-information concerns.

“A main thrust is that the CFTC wants exchanges to impose a little self-discipline,” he tells FOS. 

Rob Schwartz, a former general counsel at the CFTC who now works for law firm Morgan Lewis, posted on social media that he is “impressed with the work the CFTC has done here.” He noted that “the final version ultimately will be challenged in court, but whatever you think about event contracts, the existing rules are problematic.”