A new advisory from the US Commodity Futures Trading Commission (CFTC) could potentially reshape the debate around sports prediction markets. As platforms continue to offer contracts tied to real-world outcomes, from elections to the Super Bowl, regulators are signaling they may be willing to oversee the industry rather than shut it down altogether.
For years, prediction markets, or the like, have tested the edges of US financial regulation. That said, the CFTC’s latest announcement does not exactly settle that discussion. Instead, it sketches out how exchanges should manage sports-related contracts if they are ultimately allowed to exist.
The advisory represents a pragmatic shift. By referring to Designated Contract Market (DCM) Core Principles, the CFTC is saying ‘if this is allowed, it must be done like other products in our markets.’ In practical terms, this signals that the Commission is open to these listings if the courts determine that they are legal and the CFTC has authority over them.
Peter Sanchez Guarda, former CFTC Special Counsel
To some observers, the 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 appears more pragmatic than prohibitive. Rather than rejecting the concept outright, regulators seem to be laying the groundwork for oversight if courts decide the products are legal.
“The advisory represents a pragmatic shift,” Sanchez Guarda told ReadWrite. “By referring to Designated Contract Market (DCM) Core Principles, the CFTC is saying ‘if this is allowed, it must be done like other products in our markets.’”
Today, Sanchez Guarda runs Peter Sanchez Guarda Consulting and Turnkey Family Office. From his perspective, the communiqué reads less like a warning and more like early regulatory preparation.
“In practical terms, this signals that the Commission is open to these listings if the courts determine that they are legal and the CFTC has authority over them,” he said.
The document itself focuses on practical oversight issues. Exchanges that list sports event contracts, the agency said, should think carefully about surveillance, contract design, and ways to protect market integrity. This comes as prediction markets gain attention across the US, particularly on platforms with contracts tied to real-world outcomes such as elections, economic indicators, and sports competitions.
Legal ambiguity around gaming definitions for prediction markets
One of the biggest questions hanging over sports prediction markets comes down to a single word ie. gaming.
Current CFTC rules generally bans contracts tied to gaming or activities deemed contrary to the public interest. But the law offers surprisingly little guidance about what gaming actually means.
Sanchez Guarda said the resulting legal debate has become highly technical.
“This is one of those ‘how many angels fit on the head of a pin’ debates,” he said.
The rule at the center of the issue, Rule 40.11, bars certain contracts linked to gaming. Yet neither the rule nor the wider Commodity Exchange Act lays out a clear definition.
The gap has become a focal point in disputes between regulators and companies operating prediction market platforms.
“The only federal statute that defines ‘gaming’ is the Indian Gaming Regulatory Act,” Sanchez Guarda said. “But IGRA only applies on Indian land, not the rest of the US.”
He added that critics of sports event contracts tend to raise another argument, which is that these markets may not meet the Commodity Exchange Act’s definition of a commodity at all.
This particular concern surfaced 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 truly fit within the agency’s authority.
CFTC advisory attempts to address integrity concerns and manipulation risks
Beyond legal definitions, regulators also worry about the potential for manipulation.
The advisory specifically flags risks tied to contracts that hinge on narrow or highly specific outcomes inside a game. These types of bets may be far more challenging for exchanges to monitor than contracts based on broader results.
Sanchez Guarda said the difference is significant.
[There] is nothing in the legislative history of the CEA to suggest that it was intended to take authority for sports betting away from the 50 states, and give it to a small agency that most people have never heard of.Peter Sanchez Guarda, former CFTC Special Counsel
“Monitoring ‘single-incident’ outcomes, like a specific player’s performance, is significantly more difficult than monitoring a final game score,” he said.
When a contract focuses on a small moment inside a game, the opportunity for manipulation can increase. A player might influence the outcome of a narrowly defined bet without affecting the final score or the overall result of the match.
From a regulator’s standpoint, these scenarios create serious monitoring challenges.
“The CFTC doesn’t have the staff to police that,” he said, especially in light of cuts to services. “And if prediction markets let you bet on anything, how will the exchanges have enough staff to monitor everything that happens in the world and detect if someone knew something and bet on it?”
The concerns are one reason the guidance reiterates surveillance responsibilities for exchanges that list event-based contracts. The agency appears to be indicating that monitoring systems and integrity controls would need to match the complexity of the markets themselves.
Federal oversight versus state betting systems
Another layer of tension involves the relationship between federal financial regulators and state gambling authorities.
Sports betting is already legal in many states, where it operates under detailed licensing systems and often generates significant tax revenue. If federally regulated exchanges begin offering sports event contracts nationwide, that could overlap with, or potentially compete with, those state markets. And that fight has already begun in multiple states such as Nevada, Ohio, and Iowa.
Sanchez Guarda said that possibility raises a wider question about congressional intent.
“There is nothing in the legislative history of the Commodity Exchange Act to suggest that it was intended to take authority for sports betting away from the 50 states and give it to a small agency that most people have never heard of,” Sanchez Guarda said.
In discussions about federal authority, he pointed to a principle frequently cited by the US Supreme Court.
“Congress doesn’t hide elephants in mouseholes,” he said.
The phrase reflects the idea that Congress typically spells out major regulatory changes directly, rather than embedding them indirectly in older statutes.
For critics of sports prediction markets, this suggests the CFTC may not have been meant to oversee what looks, to many people, like a new form of sports betting.
Still, the legal landscape around agency authority has changed exponentially in recent years.
Courts historically have often deferred to federal agencies when interpreting ambiguous statutes. This was known as the Chevron doctrine. But in 2024, the Supreme Court overturned that precedent in the case Loper Bright Enterprises v. Raimondo.
The ruling means judges are now more likely to interpret statutory language independently rather than relying heavily on an agency’s reading of the law.
“The agency’s opinions about what the statute says don’t carry any special weight anymore,” Sanchez Guarda said.
The change could prove decisive as prediction markets expand. If disputes over sports event contracts reach federal courts, judges, rather than regulators, may ultimately decide whether these products belong under derivatives regulation or gambling law.
For now, regulators are sketching the rules of a market that may or may not survive. Whether sports prediction contracts become a new corner of Wall Street, or are shut down as gambling, is likely to be decided in court.
Featured image: Canva
