In a March Madness unlike any other, prediction markets have offered a new twist to the popular college basketball event.
Over the first two rounds of the NCAA men’s Division I basketball tournament, users placed nearly $250 million on the event contracts at Kalshi – a smashing figure by almost any measure. Last weekend, prediction markets listed designated contract markets (DCMs) on March Madness for the first time ever. The debut attracted throngs of new customers, triggering an app update for users at Robinhood. Despite the outpouring of interest, the developments may be viewed as somewhat maddening to leading tribal gaming entities, which support a federal ban on sports event contracts.
As the Final Four nears, the future of sports gambling in California could be altered drastically by major developments in how the federal government regulates sports-event contracts on prediction markets. Last month, the U.S. Commodity Futures Trading Commission (CFTC) announced it will convene a roundtable aimed at informing the Commission’s approach to the regulation and oversight of prediction markets. Of 18 public comments the CFTC received by a Feb. 21 deadline, approximately two-thirds came from tribal entities, underscoring the high-stakes battle the groups face.
“Allowing sports contracts to be listed and traded will interfere with the sovereign right of tribes and states to exercise their police power to regulate gaming within their respective territories—a right long recognized by courts throughout the United States,” wrote Indian Gaming Association Chairman Ernie Stevens Jr. in a letter to the CFTC.
The CFTC’s decision could result in a fundamental shift in how real-money predictions on sports are regulated across the nation. Leading exchanges such as Kalshi, Crypto.com, and Robinhood may offer more competitive pricing than the traditional sportsbook model. But could a victory for Kalshi, come at the detriment of the tribes? With billions at stake, the California tribes have taken the fight to Washington.
Examining the public interest
Since Kalshi won a temporary stay in Washington D.C. appellate court last fall allowing them to list contracts on political elections, interest in event contracts has surged in popularity. Last year, more than $500 million in event contracts were traded on the 2024 U.S. Presidential Election via Kalshi. A quick perusal of markets available on Kalshi includes: contracts on whether Elon Musk will leave DOGE before the start of 2026, the timing on if Bitcoin will hit $150,000, and predictions on the number of federal workers whose positions will be cut this year. Then in January, a D.C. Circuit court heard oral arguments in KalshiEx v. CFTC, a case that could determine whether Kalshi will be allowed to list event contracts for trading purposes. The decision may also impact the future of sports event contracts, which still remain on the Kalshi platform and the Robinhood app amid March Madness.
Under the Commodities Exchange Act (CEA), the Commission has the authority to prohibit registered entities from listing certain event contracts. The authority is granted for contracts that violate state or federal law. In other instances, the CFTC can prohibit contracts that involve activity pertaining to war, terrorism, assassination, and gaming. For instance, an exchange reportedly pulled contracts related to Luigi Mangione, including whether he would be extradited to New York, days after listing them.
Luigi Mangione markets are live
— Kalshi (@Kalshi) December 11, 2024
🟢Will he be convicted?
🟢Will he plead guilty to murder?
🟢Did he or a family member have UHC insurance?
🟢Will he be extradited to NY before next week?
🟢Did he act alone? pic.twitter.com/4ntqhG7rJm
More broadly, the Commission can prohibit contracts contrary to the public interest. In the past, the CFTC utilized a so-called “economic purpose test,” to gauge whether a financial product is inconsistent with interests supported by the public. At one point, the CFTC faced a statutory requirement to apply the test for all proposed futures contracts, a mandate that was lifted 25 years ago under the Commodity Futures Modernization Act.
Nevertheless, the CFTC reimposed the test on registered entities that sought to list an event contract. Among the factors under consideration are whether the contracts are used as a mechanism for price discovery, whether they assist with managing and hedging risk, as well as whether the products “threaten the public good.”
In a 13-page letter to the Commission, Stevens enumerated a number of reasons why he believes the contracts are “categorically contrary,” to the public interest, pursuant to 17 C.F.R. § 40.11(a)(1). The provision is a section within the CEA that pertains to event contracts. One argument raised by Stevens is that event contracts disrupt crucial revenue streams from sports wagering, which is conducted through valid tribal gaming compacts.
The tribal position
In May 2021, the Seminole Tribe of Florida struck a 30-year compact with the state, under which the tribe agreed to pay $2.5 billion over the first five years of the pact. The compact, which contains a comprehensive revenue sharing agreement, gave the tribe the exclusive right to conduct sports wagering across the state. In challenging a provision on online sports betting, two brick-and-mortar casinos argued that the Indian Gaming Regulatory Act (IGRA) only covered gaming activities on tribal lands. Last June, the Supreme Court declined to consider the appeal from West Flagler Associates, essentially validating that off-tribal, mobile sports betting could remain in place.
Joseph Webster, a partner with Washington D.C. law firm Hobbs Straus, served as the lead attorney for the Seminole Tribes in the West Flagler case. Sports events contracts that closely resemble, or expressly mirror sports betting, should be prohibited Webster contends.
“If the CFTC allows DCMs to offer sports events contracts in states where sports betting is prohibited, it would effectively force sports betting on jurisdictions that have made the decision not to allow such wagering,” Webster told Prediction News.
Others from the tribal community weighed in on questions regarding exclusivity. Dale Miller, chairman of the Elk Valley Rancheria, a federally recognized tribe from Northern California, contends that permitting the contracts will circumvent the framework of IGRA, which in turn may “undermine the carefully negotiated agreements between tribes and states.”
Another California tribe, the Santa Ynez Band of Chumash Indians, told the Commission that the tribes have negotiated for substantial exclusivity to offer certain types of Class III games, including sports betting. By allowing sports contracts to be traded on a national exchange, the action would effectively “preempt,” a swath of laws enacted by sovereign governments to protect the welfare of their citizens, according to the band. Moreover, it would “impermissibly infringe,” on tribal sovereignty and “run afoul of federalism,” principles enshrined in the Constitution, they wrote.
From a tribal perspective, the best outcome would be for the CFTC to acknowledge that sports events contracts constitute sports betting, Webster emphasized. Sports wagering, he noted, is regulated exclusively by states and tribes, and is outside the bounds of the CFTC’s regulatory jurisdiction.
Two of the nation’s most populous states, California and Texas comprise a decent chunk of Kalshi’s trades, a Kalshi representative told PredictionNews. Still, there isn’t anything disproportional on the handle relative to population figures, he explained.
Citing privacy standards, the Kalshi source declined to provide a breakdown of VIP customers in those two states. Kalshi has not released figures on state-by-state activity for the first two rounds of the NCAA tournament.
I can buy event contracts for March Madness on Robinhood now? God I love this country pic.twitter.com/Y3pTfVn077
— Yankee_Hater69 (@BufordLee315780) March 19, 2025
The high volumes at Kalshi may provide the regulated market with a reality check it needs to fend off determined competitors.
“It is an existential threat to the legal and regulated gaming industry,” said Brendan Bussmann, managing partner, B Global Advisors. “By letting rogue operators and suppliers go unchecked, unlicensed and with zero consumer protections, it should be a wake up call to everyone that desires a regulated market.”
Integrity concerns
Unlike commercial sportsbooks, Kalshi is not subjected to strict regulatory scrutiny before it lists event contracts on sports. At the moment, Kalshi is not taxed on gross revenue and is not required to adhere to any anti-money laundering protocols. Amid three major sports betting scandals over the last 18 months, the public is clamoring for enhanced safeguards on match fixing.
Last month, Major League Baseball sent a letter to the CFTC urging the commission to create an “integrity framework,” for sports event contacts if the federal agency allows DCMs to list the derivatives. As the resemblance between sports event contracts and traditional sports betting markets grows, so does the need to “replicate,” the consumer protections that exist on the state level, wrote Bryan Seeley, executive vice president of legal and operations with MLB.
Major League Baseball is the only North American professional league that submitted a letter to the CFTC during the public comment period. At this point, it is still early to gauge whether the pro sports leagues will lobby for an outright ban on sports event contracts.
“Sports leagues will only push for a blanket prohibition on sports event contracts if such leagues are unable to monetize it themselves,” said Ryan Rodenberg, a Florida State University professor who has followed the Kalshi v. CFTC litigation closely. “Accordingly, it will be unsurprising when certain sports leagues opt to start offering sports event contracts themselves or in partnership with an established operator.”
On Monday, Kalshi announced a partnership with IC360, one of the world’s top sports betting integrity monitors. Under the partnership, Kalshi will utilize IC360’s Prohibet platform to monitor suspicious customers in real time.
An advocate for sports event contracts
In February, President Donald Trump nominated Brian Quintenz to serve as the next chair of the CFTC. Quintenz previously spent several years as a CFTC commissioner, before completing a five-year term in Aug. 2021. During the stint, he famously dissented in a matter involving Eris Exchange, LLC, a registered DCM.
Quintenz, a Republican, filed a brief on March 25, 2021, after ErisX withdrew a certification contending that its NFL futures contracts met the requirements for a contract listed by a registered by a DCM. As Quintenz noted in the dissent, ErisX pulled the certification after the Commission staff determined that the NFL contracts were prohibited by the CEA, the contracts involved gaming, and the contracts were contrary to the public interest.
Quintenz, however, disagreed. For one, trading an event contract with a binary outcome is not necessarily a bet, wager, or a gamble from a regulatory perspective, he emphasized. Quintenz also drew a distinction between games of chance such as roulette with events that have a discernible economic effect (i.e. event contracts on the amount of rain in an area replete with corn farms).
To buttress his point, Quintenz cited the data-driven, quantitative analysis championed in Moneyball as an argument for why certain sports event contracts should not be construed as gaming activity.
“Try telling a professional sports team’s general manager that their outcomes are purely chance driven. General managers analyze statistics until they are red-eyed to try to get an edge, just like professional investors,” he wrote. “Hedge funds put infrared cameras on natural gas processing facilities to know the minutes they are operating or shut down so they have an edge on estimating production figures.”
Following his time at the CFTC, Quintenz joined Kalshi’s board of directors.
Thrilled to announce I’m joining @Kalshi’s Board. Prediction markets are the next frontier in market-pricing mechanisms that will provide new risk hedging opportunities and better inform public discourse. Kalshi is a true pioneer as the 1st @cftc registered event contract venue. https://t.co/g2aUCP99d9
— Brian Quintenz (@BrianQuintenz) November 16, 2021
If confirmed to lead the CFTC, Quintenz has several options on how to proceed in disentangling the event contract conundrum. Before the Court issues a decision, the CFTC could withdraw its appeal. At the same time, the Commission may propose a comprehensive set of new standards on how the agency regulates prediction markets.
Showdown in Washington
While the CFTC noted that it will hold the roundtable approximately 45 days at the conclusion of its requests for information, the Commission has not set an exact date. Meanwhile, it does not appear that legal sports betting will appear on a California ballot until 2028 at the earliest. In January, James Siva, chairman of the California Nations Indian Gaming Association, told iGamingBusiness that the tribes have come too far to “rush into” a new ballot initiative on sports betting, one that is also tied into iGaming.
The slow pace of legalization in California could ensure that bettors in the Golden State may not be able to wager legally on their phones until the 10th anniversary of PASPA. For now, 11 states have yet to legalize sports betting. Nevada Rep. Dina Titus reminded the CFTC that the regulation of sports betting has traditionally been dealt with on the state level.
Earlier this month, the Nevada Gaming Control Board issued a cease-and-desist order to Kalshi from offering events contracts across the state. Then on Monday, Massachusetts Secretary of State Bill Galvin told Reuters that the state’s securities regulator has launched an investigation into Robinhood’s decision to list event contracts.
Expect top regulators and leaders on Capitol Hill to continue to opine on the hot-button issue as the roundtable approaches.
“Prediction contracts on sports create a backdoor way to legalize sports betting in states that have not authorized it,” Titus wrote.
