Gensler Challenges CFTC on Sports Betting Regulation — State Laws Prevail
By John Nada·Jun 12, 2026·4 min read
Gary Gensler argues that sports prediction markets shouldn't supersede state laws, challenging the CFTC's regulatory reach.
Gary Gensler, former head of both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), has ignited a contentious debate over the regulation of sports-related prediction markets. In a pivotal move, Gensler submitted an amicus brief to the Sixth Circuit Court of Appeals, asserting that federal law does not grant the CFTC authority over these markets. His stance, reported by CoinDesk, suggests that state gaming laws should take precedence.
The legal battle was initiated by KalshiEx, a prediction market provider, in its lawsuit against Ohio. KalshiEx sought to prevent state-level legal actions against its operations. However, the company faced a setback when a federal judge ruled against it. This case has become a focal point in the broader discourse on whether sports-related prediction markets should be considered federally regulated swaps or merely a modern iteration of sports gambling.
Gensler's brief traces the legislative history surrounding derivatives, particularly emphasizing the Commodity Exchange Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). He argued that Congress did not include sports betting contracts within the statutory definition of swaps under Dodd-Frank. "Such contracts do not fit the CEA's purpose," Gensler stated, underscoring that these contracts are not typically utilized for economic hedging, unlike swaps.
A range of organizations, including the Indian Gaming Association and the American Gaming Association, have supported Gensler's position. They filed briefs highlighting potential conflicts with state and tribal regulations. The question of whether these prediction markets infringe on state laws has divided courts across the United States. Some judges have sided with prediction market providers, as seen in a Third Circuit ruling favoring New Jersey's position. Conversely, the Ninth Circuit has shown support for state regulations, illustrating the judicial inconsistencies.
The financial implications of this debate are significant. Should the CFTC succeed, states could lose substantial tax revenue, negatively affecting local economies. On the flip side, if states retain regulatory control, companies like KalshiEx may face a complex array of state laws, including possible criminal penalties in states such as Arizona.
The Supreme Court may eventually address this issue, providing a definitive judgment. Meanwhile, Congress is closely monitoring the situation. The stakes are high for both regulators and the prediction market industry, as this case tests the balance of federal and state powers in the realm of gambling.
The CFTC, led by Chair Mike Selig, has filed its own amicus brief, asserting that any event contract traded by a designated contract market under its supervision qualifies as a swap. The agency maintains that Congress's broad definition of a swap permits CFTC-regulated firms to offer their products, a point of contention for Gensler.
Gensler's brief counters this by questioning the CFTC's hedging rationale for sports bets, arguing that such connections to reliable commercial risk hedges are tenuous at best. He emphasizes that only event contracts associated with tangible financial, economic, or commercial consequences meet the criteria set by Congress.
Other amicus briefs have tackled various aspects of the prediction markets. The Indian Gaming Association's filing, for instance, argues that these markets infringe upon tribal nations' sovereign rights under the Indian Gaming Regulatory Act, which mandates that gaming activities on native lands benefit tribes rather than private entities.
KalshiEx, described in these filings as conducting unregulated gaming via its "legal sports betting" app, is accused of diverting crucial tribal and state governmental revenue to private owners. The American Gaming Association's brief further challenges the distinction between sports prediction markets and traditional sports betting, citing Kalshi's own trademark application that associates its services with sports betting activities.
The AGA's argument highlights similarities between Kalshi's offerings and conventional sportsbooks, examining various options such as parlays. Both the AGA and Gensler's briefs argue that sports-related prediction markets fail to provide genuine economic hedges. Better Markets' brief supports this view, distinguishing between markets for political and sporting events, as previously noted in Kalshi filings.
The complex legal landscape continues to evolve, with courts delivering mixed rulings. In April, the Third Circuit Court of Appeals ruled that New Jersey could not shut down prediction markets, while the Ninth Circuit appeared more inclined to favor state regulations. This disparity underscores the ongoing uncertainty.
Ultimately, the Supreme Court's involvement could bring clarity, although it may also introduce further complications. As the legal battle unfolds, both federal and state regulators, as well as the prediction market industry, remain on high alert, navigating the intricate dynamics of gambling regulation.