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New advice from the US Commodity Futures Trading Commission (CFTC) could potentially change the debate surrounding sports betting markets. As platforms continue to offer contracts tied to real-world outcomes, from elections to the Super Bowl, regulators have signaled they may be inclined to monitor the industry rather than shut it down entirely.
For years, prediction markets or the like have tested the edges of US financial regulation. However, the CFTC’s latest announcement doesn’t exactly settle that discussion. Instead, he outlines how exchanges should manage sports-related contracts if they are ultimately allowed to exist.
The Council represents a pragmatic change. Citing the underlying principles of the designated contract market (DCM), the CFTC said that « if this is allowed, it should be done like other products in our markets. » In practice, this means that the Commission is open to these listings if the courts decide they are legal and the CFTC has jurisdiction over them.
Peter Sanchez Guarda, former special counsel to the CFTC
For some observers, tone matters.
Peter Sanchez Guarda, who spent more than two decades at the CFTC and previously served as special counsel, said the agency’s message seemed pragmatic rather than prescriptive. Instead of rejecting the concept entirely, regulators appear to be laying the groundwork for oversight if the courts decide the products are legal.
« The council represents a pragmatic change, » Sánchez Guarda told ReadWrite. « Referring to the underlying principles of the designated contract market (DCM), the CFTC said that ‘if this is allowed, it should be done like other products in our markets.’
Today, Sanchez Guarda runs Peter Sanchez Guarda Consulting and a turnkey Family Office. From his perspective, the communique looks less like a warning and more like early regulatory preparation.
« Effectively, that means the Commission is open to these listings if the courts decide they’re legal and the CFTC has authority over them, » he said.
The document itself focuses on practical issues related to supervision. Exchanges that list contracts for sporting events, the agency said, should carefully consider monitoring, contract design and ways to protect the integrity of the market. It comes as prediction markets gain traction in the US, particularly on platforms with contracts tied to real-world outcomes such as elections, economic indicators and sports competitions.
Legal ambiguity surrounding game definitions for prediction markets
One of the biggest questions over the sports prediction markets boils down to one word, ie. games.
Current CFTC rules generally prohibit contracts related to games or activities deemed contrary to the public interest. But the law offers surprisingly little guidance on what the games actually mean.
Sanchez Guarda said the resulting legal debate has become highly technical.
« It’s one of those ‘how many angels fit on the tip of a pin’ debates, » he said.
The rule at the center of the issue, rule 40.11, prohibits certain gambling-related contracts. Yet neither the rule nor the broader Commodity Exchange Act provides a clear definition.
The gap has become a focal point in disputes between regulators and companies operating market prediction platforms.
« The only federal law that defines ‘gaming’ is the Indian Gambling Regulatory Act,” Sanchez Guarda said. “But IGRA only applies to Indian soil, not the rest of the US. »
He added that critics of sporting event contracts tend to raise another argument, which is that these markets may not meet the definition of a commodity in the Commodity Exchange Act at all.
This particular concern arose when the CFTC previously approved one of the earliest event contracts. In that case, the decision passed by a narrow margin, with two commissioners issuing dissenting opinions questioning whether the contracts actually met the agency’s authority.
The CFTC’s consultations attempt to address integrity issues and risks of manipulation
Beyond legal definitions, regulators also worry about the potential for manipulation.
The notice specifically highlights risks associated with contracts that depend on narrow or highly specific outcomes within a single game. These types of bets can be much more difficult for exchanges to monitor than more general performance-based contracts.
Sanchez Guarda said the difference is significant.
(There is) nothing in the CEA’s legislative history to suggest that it was intended to take sports betting authority away from the 50 states and give it to a small agency that most people have never heard of.Peter Sanchez Guarda, former special counsel to the CFTC
« Monitoring the results of ‘single incidents’, such as the performance of a particular player, is significantly more difficult than monitoring the final outcome of the game, » he said.
When the contract focuses on a small moment in the game, the possibility of manipulation can increase. A player can affect the outcome of a narrowly defined bet without affecting the final score or overall outcome of the match.
From the regulator’s point of view, these scenarios create serious monitoring challenges.
« The CFTC doesn’t have the staff to police this, » he said, especially in light of service cuts. « And if prediction markets let you bet on anything, how are the exchanges going to have enough staff to keep track of everything that’s going on in the world and find out if someone knew something and bet on it? »
The concerns are one reason why the guidelines reiterate the monitoring responsibilities of exchanges that list event-based contracts. The agency appears to indicate that monitoring systems and integrity controls will need to match the complexity of the markets themselves.
Federal Oversight of State Betting Systems
Another level of tension involves the relationship between federal financial regulators and state gambling authorities.
Sports betting is now legal in many states, where it operates under detailed licensing systems and often generates significant tax revenue. If federally regulated exchanges begin offering contracts for sporting events across the country, it could overlap or potentially compete with those state markets. And that battle has already begun in multiple states like Nevada, Ohio and Iowa.
Sanchez Guarda said the possibility raises a broader question about the intentions of Congress.
« There is nothing in the legislative history of the Commodity Exchange Act to suggest that it was intended to take sports betting authority away from the 50 states and give it to a small agency that most people have never heard of, » Sanchez Guarda said.
In discussions of federal power, he pointed to a principle often cited by the US Supreme Court.
« Congress does not hide elephants in mouse holes, » he said.
The phrase reflects the idea that Congress usually enacts major regulatory changes directly, rather than embedding them indirectly in older laws.
To critics of sports betting markets, this suggests the CFTC may not be meant to police what appears to many to be a new form of sports betting.
Still, the legal landscape surrounding the agency’s powers has changed exponentially in recent years.
Historically, courts have often deferred to federal agencies when interpreting ambiguous laws. This was known as the Chevron Doctrine. But in 2024, the Supreme Court overturned that precedent in Loper Bright Enterprises v. Raimondo.
The decision means judges are now more likely to interpret statutory language independently, rather than relying heavily on agency readings of the law.
« The agency’s opinions about what the statute says no longer carry any special weight, » Sanchez Guarda said.
The change could prove crucial as prediction markets expand. If disputes over contracts for sporting events reach the federal courts, judges, not regulators, may ultimately decide whether those products fall under derivatives regulation or gambling law.
For now, regulators are sketching the rules of a market that may or may not survive. Whether sports betting contracts will become a new corner of Wall Street or be shut down as gambling is likely to be decided in court.
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