The ongoing contention between prediction markets and the gaming industry has intensified, drawing notable figures into the fray, including a former chair of the Commodity Futures Trading Commission (CFTC) and the largest derivatives marketplace in the United States.
On Wednesday, Gary Gensler, who served as the chair of the CFTC from 2009 to 2014 and led the Securities and Exchange Commission (SEC) from 2021 to 2025, spoke during the Indian Gaming Association’s New Normal webinar. Gensler, who oversaw the CFTC during the Great Recession and the resultant implementation of the Dodd-Frank Act, critiqued the rise of prediction markets and the CFTC’s role in fostering their growth. He voiced his opposition in both media appearances and court documents, specifically through an amicus brief he filed supporting Ohio's lawsuit against Kalshi on June 11. Gensler’s primary argument is that Congress did not intend for the CFTC to act as a national regulator for sports betting by allowing trade on sports event contracts.
“I chose to speak up … as a friend of the court to say, ‘What were we all doing [at the CFTC] back then, and what were we not doing back then? And by the way, unambiguously, we were not trying to have a federal regulator regulate sports betting,’” Gensler stated during his discussion with hosts Victor Rocha and Jason Giles.
Gensler’s history as a CFTC leader during the rule development phase positions him as a prominent opponent of prediction markets. He supported the gaming industry in claiming that sports event contracts should not be classified as financial swaps and highlighted the CFTC’s lack of resources to regulate nationwide betting effectively. He raised the concern that if sports event contracts were deemed swaps, then all state and tribal sports bets over the past ten years could potentially be illegal, a situation that seems unlikely to align with Congressional intent.
This legal nuance is crucial to several ongoing lawsuits surrounding prediction markets. In a case in Nevada, a preliminary injunction granted to Kalshi by Carson City District Court Judge Jason Woodbury was eventually overturned, reflecting a shift in perspective regarding the swap classification.
“Congress did not consider bets on outcomes of sporting events, how many points a player would score in a quarter, or sportsbook-style parlays to be swaps,” Gensler wrote in his Ohio brief. “These contracts do not have hedgers meeting speculators to lay off risk.”
Sports event contracts are just a minor segment of the CFTC's broader scope, which covers a commodities, futures, and derivatives market valued in the trillions. The commission is also adapting to the growing role of digital assets like cryptocurrency. Despite the demands on the CFTC, Chairman Michael Selig has served as the sole acting commissioner since his appointment in December, a situation that has drawn criticisms from Congress for staffing shortages. Gensler remembered that he participated in thousands of votes during his tenures, emphasizing the benefits of having multiple commissioners debating issues.
“I think that we were better off and stronger as a nation with those [full] commissions, even though sometimes those commissions were a little slower to act, sometimes a bit cumbersome, but I think it was good to have three to five people debating these things and seeking compromise,” Gensler remarked.
He noted in his brief that the CFTC failed to request additional resources after PASPA was repealed, which could have reinforced its regulatory arguments.
If cases concerning sports event contracts reach the Supreme Court, legal experts suggest that the court’s decision could hinge on federal preemption interpretations. Gensler pointed out that the Supreme Court traditionally disapproves of taking obscure statutory language out of context to grant excessive power to the Executive Branch. He quoted former Supreme Court Justice Antonin Scalia, who described this as “hiding elephants in mouse holes.”
On the opposing side, some advocates for prediction markets have rectified the perception that the CFTC operates ineffectively under a single commissioner. Elie Mishory, chief regulatory officer for Novig, stated that while a full commission is preferable, the leadership fundamentally directs operations.
“The CFTC is a chair-driven institution,” Mishory wrote. “So is the SEC. We saw that very clearly at the SEC under Gensler.” He argued that the chair sets the agenda and influences what gets prioritized and voted on.
Regardless of this dynamic, Selig's stance on prediction markets is clear: under his leadership, the CFTC has filed lawsuits against nine states to assert federal jurisdiction, including a recent action against Kentucky. The CFTC is also drafting its first set of prediction market regulations, although these proposed rules could leave significant portions of sports event contracts unregulated.
Adding to the controversy, the Chicago Mercantile Exchange (CME), the world’s largest derivatives marketplace, has joined the ranks of critics against the CFTC. CME filed a lawsuit against the CFTC on June 18, not regarding sports contracts but about perpetual futures, also known as “perps.” These derivative contracts do not have an expiration date, enabling traders to hold positions indefinitely.
Supporters argue that perps are innovative, while critics warn they can lead to excessive leverage and jeopardize market stability. Currently, Kalshi reports significant trading volumes in crypto-related perp markets, including Bitcoin and Ethereum. Since launching its perp offerings, Kalshi has surpassed $1 billion in trading volume within the first week. CME shares, however, have dropped by about 12% since the introduction of these derivatives.
In a recent CNBC appearance, Kalshi CEO Tarek Mansour described perps as “the purest form of trading” because they require only strong conviction from traders. Conversely, CME contends that perps undermine market definitions and have lodged assertions in their lawsuit that echo concerns from sports contract litigation regarding ambiguous definitions and the influence of Selig.
“With one stroke of his pen, the chairman overrode Congress’ definition of the term ‘swap’ and circumvented the regulatory regime Congress required for that form of derivative,” the lawsuit claims. It also maintains that Kalshi’s self-certified perps have drawn over a billion dollars in trades due to the chairman’s order.
CME is chiefly concerned about how perps might impact its business, asserting that these products directly compete with its own offerings and aim to divert CME’s customer base. In response to the lawsuit, the CFTC accused CME of engaging in “lawfare” against the preceding administration's pro-innovation policies.
The CME’s lawsuit marks a significant development for prediction markets. Their rapid growth can be attributed to both retail trader engagement and burgeoning institutional interest. Nevertheless, should the legal landscape shift against sports contracts or perps, the future prospects for ongoing investment and market expansion may become increasingly uncertain.
