CFTC Drops 2024 Proposal to Ban Sports and Political Prediction Markets
Washington, D.C., — The U.S. Commodity Futures Trading Commission (CFTC) announced on Wednesday that it is withdrawing the notice of proposed rulemaking that would have prohibited “event contracts” tied to sports, politics and other real‑world outcomes. The move signals a shift away from the Biden administration’s earlier push to bar such contracts and opens the door for a more measured regulatory approach.
Background
In early 2024 the CFTC released a proposed rule that classified many event‑based derivatives—including wagers on sports results, election outcomes and even wartime events—as “contrary to the public interest.” The proposal, drafted under the previous administration, called for an outright ban on these contracts ahead of the 2024 presidential election.
The rulemaking was intended to curb what regulators described as speculative betting that could influence public perception of political and sporting events. However, the draft met immediate resistance from industry participants who argued that these products are already regulated under the Commodity Exchange Act (CEA) and that a ban would stifle legitimate market innovation.
The Withdrawal
CFTC Chair Mike Selig, confirmed by the agency’s press release, stated that the commission has rescinded the 2024 notice of proposed rulemaking and will not issue final rules based on that draft. According to Selig, the original proposal reflected “the prior administration’s foray into merit regulation with an outright prohibition on political contracts,” and the commission now intends to pursue rulemaking that aligns with a “rational and coherent interpretation” of the CEA.
Selig added that the commission will focus on a framework that promotes responsible innovation in derivatives markets while respecting the intent of Congress. He emphasized that the CFTC will work with staff on a new set of rules for event contracts, but no timeline was provided.
Staff Letter on Sports Event Contracts Also Pulled
Alongside the proposal, the CFTC removed a September staff memorandum that reminded regulated entities of their obligations when handling sports‑related event contracts. The letter, issued before a potential U.S. government shutdown, warned firms to prepare for litigation and to maintain robust risk‑management practices.
Chair Selig explained that the advisory, while intended to flag litigation risks, inadvertently generated confusion among market participants. Its withdrawal aims to clear up uncertainty while the commission develops a more comprehensive rulemaking package.
Impact on Prediction‑Market Platforms
The decision directly affects platforms that have built sizable user bases around event‑based contracts, including Polymarket, Kalshi, and the prediction‑market offerings from Coinbase and Crypto.com. These services have faced a wave of state‑level actions alleging that they operate as unlicensed gambling venues. The companies, in turn, maintain that their products fall under federal CFTC jurisdiction rather than state gambling statutes.
With the ban now off the table, these platforms can continue operating under the current regulatory framework, but they remain subject to ongoing state lawsuits and potential future federal guidance.
What Comes Next?
- New Rulemaking Initiative: The CFTC has signaled its intention to draft fresh rules for event contracts that balance market innovation with consumer protection. Stakeholders can expect a public comment period once the proposal is released.
- State‑Level Legal Battles: Even without a federal ban, state attorneys general may continue pursuing actions against platforms they deem to be offering illegal gambling. The outcome of these cases could shape how prediction markets are regulated at the state level.
- Industry Preparedness: Firms are advised to maintain comprehensive risk‑management policies, clear disclosures, and contingency plans in case of litigation or regulatory shifts.
Key Takeaways
- Federal Ban Reversed: The CFTC has withdrawn its 2024 proposal to prohibit sports, political and war‑related event contracts.
- Shift in Regulatory Tone: Chair Mike Selig promises a “rational and coherent” approach that aligns with the Commodity Exchange Act and supports responsible market innovation.
- Staff Guidance Retracted: The commission also removed a prior staff letter that warned of litigation risks for sports event contracts, acknowledging that it caused market confusion.
- Prediction‑Market Platforms Remain in Play: Companies like Polymarket, Kalshi, Coinbase, and Crypto.com can continue offering event contracts under existing federal oversight, though state challenges persist.
- Future Rulemaking Expected: The CFTC will develop new, clearer rules for event contracts, though timelines and specifics remain to be announced.
The withdrawal marks a notable recalibration of U.S. derivatives policy, offering a tentative reprieve for the burgeoning prediction‑market sector while underscoring the ongoing regulatory balancing act between innovation and consumer protection.
Source: https://cointelegraph.com/news/cftc-withdraws-proposal-ban-sports-political-prediction-markets?utm_source=rss_feed&utm_medium=feed&utm_campaign=rss_partner_inbound
