The U.S. government is making the clearest argument yet that sports betting can be regulated as finance, not gambling.
In a filing late Tuesday, the Commodity Futures Trading Commission and the Department of Justice asked a federal court to block Arizona from enforcing its gambling laws against prediction market operator Kalshi. The agencies say contracts tied to sports, elections and other real-world events are financial derivatives called “swaps,” putting them under federal oversight.
If the courts agree, it could shift control of a rapidly growing market from the states to Washington, allowing prediction platforms to operate nationally under a single set of rules.
But at the heart of the matter is a simple question: what exactly is a bet?
Arizona and a growing number of states say sports scores contracts operate like traditional betting and should be regulated like gambling, with licensing requirements, age restrictions and consumer protections.
Arizona, however, went further than most, filing criminal charges against Kalshi under the state’s gambling laws, with an arraignment scheduled for April 13.
Federal regulators see things differently. In their filing, they argue that what matters is how the contracts are structured, not what they follow. Since payments are dependent on the occurrence of a future event and that event may have economic consequences, the products fall under the same legal framework as derivatives linked to commodities or interest rates.
This interpretation would place prediction markets firmly under the control of the Commodity Exchange Act, where the CFTC has what it describes as “exclusive jurisdiction.” It would also limit the ability of individual states to shut down or restrict these platforms, which regulators say would otherwise create a fragmented, state-by-state system.
The legal battle has been going on for months and is now starting to result in conflicting decisions. As CoinDesk previously reported, a federal appeals court in New Jersey recently sided with Kalshi, finding that his sports contracts are presumptively permissible under federal law unless the CFTC intervenes. But courts in other jurisdictions have been more receptive to states’ arguments, allowing enforcement measures to move forward.
In its filing, the government warned that allowing states to pursue federally regulated exchanges would undermine a national market that Congress intended to federally oversee.
If the courts ultimately accept the CFTC’s position, prediction markets could operate nationwide within a single federal framework, bypassing the state-by-state system that governs sports betting today. If they reject it, the products could be folded into existing gambling regimes or shut down completely in key jurisdictions.
For now, the federal government is taking a broad view of its authority, arguing that a contract on the Super Bowl is not fundamentally different from a contract tied to oil prices or interest rates.
The courts must now decide whether this comparison is valid.
