Trump Regulatory Path for Prediction Markets Not Slowing Courts

The Trump administration’s embrace of prediction markets might swing courts in favor of companies that allow people to wager on anything from the weather to basketball shots, attorneys say.

Just how much its claim of exclusive regulatory power will sway widespread litigation ensnaring states seeking to regulate prediction market providers such as Kalshi Inc. and Crypto.com is up for debate.

President Donald Trump‘s Truth Social media platform in October announced its own venture into prediction markets partnering with Crypto.com. His son, Don Jr., has invested through his VC firm in Polymarket and is an adviser to Kalshi, giving the family a stake in the outcome.

The Commodity Futures Trading Commission, charged with overseeing US derivatives markets, has supported prediction markets since its current chairman was installed in December—a turnabout from the prior administration’s efforts to prohibit Kalshi’s election-related event contracts and have Polymarket shutter its US operations. Now, their chief executives sit on the regulator’s Innovation Advisory Committee.

But the economic interest of states in regulating betting and the CFTC’s need to protect its turf will propel lawsuits, attorneys say.

Prediction markets and the CFTC say event contracts are “swaps” placed under the regulator’s exclusive jurisdiction after the 2008 financial crisis, preempting state regulation and making it the sole authority to oversee these derivative contracts on federally-regulated markets.

Congress likely didn’t intend to turn sports bets into CFTC-overseen swaps, counters Zuckerman Spaeder LLP’s Aitan Goelman, a former CFTC enforcement division director. The agency lacks the bandwidth to be the “national gambling regulator,” he said.

The US Supreme Court’s 2024 decision in Loper-Bright Enterprises v. Raimondo, overturning its long-standing doctrine of deferring to an agency’s reasonable interpretation of ambiguities in a law might require more than the CFTC’s persistence in lawsuits, prompting greater scrutiny over what Congress intended to do when it gave the agency that power in the Commodity Exchange Act.

Event contracts let traders put money on binary outcomes ranging from whether Trump will say “Drill Baby Drill” during the State of the Union to if the Indiana Pacers will beat the Philadelphia 76ers Tuesday night.

States maintain sports event contracts are merely glorified gambling subject to their regulation like sportsbooks, pitting them against Trump’s CFTC. State and appellate court litigation has drawn more players seeking to forestall state control, including Kalshi, Crypto.com, Robinhood Markets Inc., Coinbase Inc., and Polymarket.

Federal courts have issued multiple rulings over whether these companies will ultimately prevail on their arguments against state regulation. Last week a Tennessee federal judge granted Kalshi a preliminary injunction blocking state enforcement, a Massachusetts judge delayed the state’s injunction pending appeal, and Nevada brought an enforcement action against Kalshi in state court.

“There’s a lot of nuance and a lot of complexity to this,” said Fenwick & West LLP’s Noah Solowiejczyk. “So, I would expect you may just continue to see courts approaching this in different fashions and not always coming to exactly the same conclusions.”

The Chairman’s Championing

CFTC Chairman Michael Selig has touted the agency’s exclusive jurisdiction over these contracts, directly hopping into the battle with a brief filed with the San Francisco-based US Court of Appeals for the Ninth Circuit. States haven’t indicated they’re backing down.

“We know Chairman Selig is willing to strongly defend the agency’s exclusive jurisdiction,” given recent comments, said Kari Larsen, co-chair of Willkie Farr & Gallagher LLP’s Digital Works practice.

“He also recently withdrew the prior staff advisory and the proposed rules that were an effective ban on listed sports contracts, signaling a new welcoming direction for prediction markets,” she said. “The CFTC’s friend-of-the-court brief could carry significant weight with judges grappling with the preemption question and tip the scales toward the platforms.”

The CFTC’s support has been lauded by prediction markets. “Their involvement represents a tectonic shift in the litigation landscape,” said Coinbase vice president Ryan VanGrack.

Deference

The Supreme Court’s abandonment of administrative agency deference enshrined in the 1984 ruling Chevron USA v. Natural Resources Defense Counsel, left in place a weakened doctrine that may lessen the CFTC’s clout in court.

What a regulator says “does not carry as much weight in the court’s interpretation of statutory law as it would have in a pre-Loper Bright world where Chevron deference was still good law,” said Winston & Strawn LLP’s Drew Hinkes.

Prediction markets say the change in law giving the CFTC authority over swaps renders the question of deference unneeded.

“Deference to government agency interpretation is unnecessary when the plain language of the CEA grants the CFTC exclusive jurisdiction over swaps and event contracts,” said Crypto.com Chief Legal Officer Nick Lundgren.

“Really the only conclusion is that the CFTC, if you take their argument, is saying that’s all illegal,” Goelman said. “That clearly wasn’t Congress’ intent. At the time, gambling was illegal nationally” under the Professional and Amateur Sports Protection Act. That was overturned by the high court in 2018, letting states legalize sports betting.

Rulemaking

Rulemaking or Congress might need to clarify some of these issues. The CFTC didn’t respond to requests for comment for this story.

“There’s a fundamental mismatch between the statute and the regulation” promulgated by the agency, said Tamika Bent, formerly a CFTC chief counsel who joined Willkie in 2024. “The CFTC may only prohibit a contract if it involves an enumerated activity—like gaming—and the CFTC determines that the contract is contrary to the public interest,” under the CEA. “Both prongs must be met to prohibit a contract.”

But, she said, “The regulation effectively skips the second statutory step. The upcoming rulemaking may finally address this disconnect.”

States on both sides of the aisle pushing their position might “resonate up to Congress,” said Boies Schiller Flexner LLP’s Dan Boyle.

“Whether that happens in the next year is probably optimistic with the coming midterm elections, but I would find it hard to believe that’s not going to be a topic of discussion,” he said.