The US government is making the clearest arguments yet that sports betting can be regulated as finance, not gambling.
In a filing Tuesday night, the Commodity Futures Trading Commission and the Department of Justice asked a federal court to stop Arizona from enforcing its gambling laws against prediction market operator Kalshi. The agencies argue that contracts tied to sports, elections and other real-world events are financial derivatives known as “swaps,” putting them under federal oversight.
If the courts agree, it could shift control of a fast-growing market from the states to Washington, allowing prediction platforms to operate nationwide under a single set of rules.
But at the heart of the case is a simple question: what exactly constitutes a bet?
Arizona and a growing number of states say contracts on sports scores operate just like traditional betting and should be regulated like gambling, with licensing requirements, age restrictions and consumer protections.
Arizona has gone further than most, however, filing criminal charges against Kalshi under the state’s gambling laws, with an arraignment scheduled for April 13.
Federal regulators see it differently. In their presentation, they argue that what matters is how contracts are structured, not their monitoring. Because payments depend on whether a future event occurs, and that event can have economic consequences, the products fall under the same legal framework as derivatives linked to commodities or interest rates.
That interpretation would place prediction markets firmly under the Commodity Exchange Act, where the CFTC has what it describes as “exclusive jurisdiction.” It would also limit the ability of individual states to shut down or restrict these platforms, something regulators warn would create a fragmented system, state by state.
The legal fight has been brewing for months and is now beginning to produce conflicting rulings. As CoinDesk previously reported, a federal appeals court in New Jersey recently sided with Kalshi and found that his sports contracts are presumptively permissible under federal law unless the CFTC intervenes. But courts in other jurisdictions have been more receptive to state arguments, allowing enforcement actions to move forward.
In its filing, the administration warned that allowing states to process federally regulated exchanges would undermine a national market that Congress intended to oversee at the federal level.
If the courts ultimately accept the CFTC’s position, prediction markets could operate nationwide under a single federal framework, effectively bypassing the state-by-state system that governs sports betting today. If rejected, the products could be forced to be folded into existing gaming regimes or shut down entirely in key jurisdictions.
For now, the federal government is taking a broad view of its authority, arguing that a Super Bowl contract is not fundamentally different from one tied to oil prices or interest rates.
The courts now have to decide whether that comparison is valid.
