The former chairman of the Commodity Futures Trading Commission (CFTC) said prediction markets weren't initially intended to offer sports event contracts.
Key Takeaways
- Gensler was in charge when the CFTC was granted regulation over “swaps” markets.
- Gensler said sports event contracts fall outside the original intent of federal oversight.
- A clause in the CFTC’s binding framework allows it to remove markets not in the public interest, including “gaming” markets.
“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 overturning of the Professional and Amateur Sports Protection Act in 2018 opened the door for states to legalize sports betting within their jurisdictions. In the eight years since, 39 states have adopted sports betting legislation and launched legal and licensed sportsbooks.
Although sports contracts offered by prediction platforms don’t function exactly like traditional betting odds, they occupy a similar space: Users stake money on outcomes they believe will occur, with pricing tied to probability, and ultimately win or lose based on the result.
CFTC-licensed prediction market apps have launched operations in all 50 states without obtaining state gaming licenses, arguing federal oversight preempts state law. State regulators dispute that claim and have filed lawsuits in more than a dozen jurisdictions, including New Jersey, Nevada, and Arizona.
Enjoying Covers content? Add us as a preferred source on your Google account“Nobody was intending to pre-empt the New Jersey state gaming commission,” Gensler said. “It was politically not discussed, and if it had been, it would have been dead in Congress. Senators wouldn’t have voted for it.”
Difference in opinion
One of Gensler’s most notable moments as CFTC chair came in 2009 when he helped craft the Dodd-Frank Wall Street Reform and Consumer Protection Act, which brought swaps markets - where parties exchange cash flows or liabilities tied to underlying assets - under federal regulation.
“(Federal oversight) should apply to dealers and derivatives no matter what type of swaps or other derivatives may be invented in the future,” Gensler said in testimony before the House Financial Services Committee at the time.
Kalshi, the leading prediction platform in the U.S. and primary source of widespread frustration for gaming officials, has argued sports event contracts classify as swaps. Gensler said he didn't anticipate that term being used to classify contracts that pay customers for a basketball player scoring 10 points.
Prediction platforms have notched several victories in key court battles. A federal court recently granted them a temporary restraining order against Arizona’s gaming officials at the request of the CFTC after the courts had initially supported Arizona’s attorney general and the pursuit of criminal charges against Kalshi.
A third circuit federal appeals court also opined that sports event outcomes are linked to “financial, economic, or commercial consequence,” meaning that they could be classified as a swap.
“People use prediction markets because they’re more fair, transparent, and reward being right,” Kalshi CEO Tarek Mansour said following the decision. “This is a big win for the industry and millions of users.”
A way out?
While prediction platforms have been winning several legal battles, there may be a poison pill lurking behind the broadly defined Dodd-Frank Act.
Gensler and the other authors of the Act included a clause in the Commodity Exchange Act, effectively the CFTC’s constitution, that granted the CFTC the power to remove contracts deemed to be against the public interest. That included markets linked to “gaming,” a word specifically included at the request of then-Democratic Majority Leader and Sen. Harry Reid.
