A former commissioner of the Commodity Futures Trading Commission (CFTC) questioned if sports event contracts could pass a “fundamental” financial test to justify their existence.
Key Takeaways
- Berkovitz questioned whether sports event contracts satisfy the economic-purpose test required under the Commodity Exchange Act.
- The CFTC, during Berkovitz’s tenure, gave Kalshi a DCM license.
- President Donald Trump is a strong supporter of the CFTC’s authority and sports event contracts.
Berkovitz was nominated by President Donald Trump in April 2018 to serve as CFTC commissioner. He was unanimously confirmed by the Senate in August 2018 and was sworn in just over a week later for a five-year term that expired in April 2023.
Despite his connection to Trump - a strong supporter of sports event contracts and the CFTC’s authority to regulate prediction markets - Berkovitz questioned the validity of these markets.
“We found that there wasn’t an economic purpose under the (Commodity Exchange Act) to sports betting contracts,” Berkovitz said on “The Policy Protocol,” while describing ErisX’s application to list NFL contracts in 2021. “The commodity markets are not for entertainment; they’re not to foster sports betting if there’s no economic purpose. They’re really for fundamental things that matter to the economy.”
An economic purpose test is a legal standard that must be met within the U.S. derivatives market. The test can be met if contracts allow hedging or transferring real-world prices to operational risks, and price discovery, which involves sharing pricing information that can be used by consumers to purchase contracts.
Simply put, the economic purpose test separates financial tools and functions from gambling or random chance.
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Are sports event contracts just sports betting?
While Berkovitz expressed skepticism about sports contracts, he noted that he was still at the CFTC when Kalshi received its designated contract market license.
Kalshi began by offering standard contracts in the political, financial, and cultural industries. It launched sports event contracts in January 2025, close to two years after Berkovitz left the Commission.
“I think prediction markets have tremendous potential for adding valuable information and potentially hedging tools on various issues that have economic significance and consequence,” Berkovitz said. “At the same time, I think we need to remember what the fundamental purpose of the Commodity Futures Trading Commission and the Commodity Exchange Act is, and the fundamental purpose ... is to foster national and international commerce by providing means for hedging, for risk management, and for price discovery, and fostering trade and commerce as a result.
“There has to be an economic purpose to the markets that the CFTC regulates, and those relate to economic purposes in the context of the CEA (which) relate risk management and price discovery.”
Berkovitz’s comments echo those of former CFTC chair Gary Gensler, who flatly referred to sports event contracts as “sports betting.”
“I never once ever heard a member of Congress or their staffs suggest that the law they were writing, acting upon, and voting on was for our little agency, the CFTC, to have oversight over sports betting,” Gensler, who served as CFTC chair from 2009-14 and 2021-25, told Barron’s. “Betting on sports is gaming.”
The prediction market battle
Prediction market news has been dominated by the growing debate over sports event contracts. Operators argue they liberate customers from the house vig embedded in traditional betting odds, while state gaming officials insist they allow prediction operators to act as unlicensed betting outfits.
The CFTC recently proposed a new set of rules that would eliminate any gray area surrounding sports event contracts by formally allowing them under the agency's framework. If approved, it would deal a huge blow to states hoping to gain control over the situation.
