Acting CFTC chair Caroline Pham responded to a letter from seven state senators that posed 11 questions related to sports event contracts. The September letter to the Commodity Futures Trading Commission (CFTC) asked why the agency was allowing prediction market exchanges to offer gaming products, which are regulated by states and tribes.
Pham was light on detail in her responses, which were first reported by The Closing Line. She reiterated that contracts self-certified under Rule 40.2 satisfied the CFTC’s requirements to list those contracts. Pham wrote:
“Under the self-certification process, a DCM, as a self-regulatory organization, is responsible for ensuring that the product certification is complete and consistent with the Act and CFTC regulations. Pursuant to CFTC regulation § 40.2(c), if a product is self-certified, the Commission can only stay the product listing ‘during the pendency of Commission proceedings for filing a false certification or during the pendency of a petition to alter or amend the contract terms and conditions pursuant to Section 8a(7) of the Act.’”
While there was no explicit stance stated, Pham seemed to indicate that under current law and CFTC regulations, Designated Contract Markets (DCMs) listing sports event contracts are not out of line. The letter focused on the mandate the commission has to uphold the 23 Core Principles DCMs must follow, going into some detail on the processes in place to ensure DCMs remain compliant. Pham also acknowledged ongoing court challenges on the legality of sports contracts without commenting further.
Sports event contracts have ongoing support in CFTC
Pham’s responses follow President Trump’s CFTC Chairman nominee Mike Selig’s testimony before the Senate Agriculture Committee. During the hearing, Selig reiterated his commitment to principles-based regulation, including giving leeway to companies in how they protect traders and prevent fraud. When asked about the legality of sports event contracts, he repeatedly said it was for the courts to decide.
Asked whether he thought sports contracts constitute gaming, Selig said “these are questions for the courts.”
Pham and Selig have revealed little about how they would categorize sports contracts other than allowing them until there is a good reason not to. Integrity scandals or know-your-customer failures seem more likely to derail sports contracts than a potential stance or regulatory change originating from the CFTC.
Will sports event contracts become too big to fail?
Despite ongoing litigation and court challenges, there’s no denying the high amount of momentum currently working in favor of sports event contracts. The current political administration is pro-crypto and prediction markets, and the likely incoming CFTC chairman is likely to allow sports contracts to flourish under his watch. Current and prospective DCMs and FCMs are likely to continue self-certifying sports event contracts relatively unrestrained.
And while a change in administration from Republican to Democrat could shift the CFTC’s views, enough support for sports contracts today could make it more difficult for a future set of commissioners to delist them. For example, a 2029 commissioner who tries to delist sports contracts would not only be facing strong resistance from exchanges. The CFTC would also have to choose to unwind what at that point will be millions of dollars in trades. That may be as simple as letting the next round of trades settle before delisting the contracts, but these contracts could be in enough portfolios to make a wholesale ban challenging.
The CFTC would also face potential lawsuits under the Administrative Procedures Act (APA), which lays out how an agency can create and enforce its regulations. PredictIt successfully sued the CFTC under the APA for rescinding the no-action letter that had been allowing PredictIt to operate. Kalshi’s election contract lawsuit was also an APA-based case.
There’s no guarantee that the CFTC would lose an APA case over sports contracts. However, the agency will have to find a better reason to delist sports contracts than a mere change in administration. Such a legal challenge could also take years to resolve.
The CFTC may be leaving its hands off of sports contracts now, but the agency’s choices today could constrain a future set of commissioners with divergent views of sports contracts.
