Sports Prediction Markets Could Be Banned, as Congress Prepares Legislation

Congress is preparing legislation that could ban sports prediction markets nationwide. If approved, the new law would ban companies such as Kalshi and Polymarket from offering any markets on sporting events. It could be a pivotal moment in the industry, which has experienced exponential growth over the last year.

Lawmakers have drafted an amendment to the Commodity Exchange Act (CEA), which acts as the rulebook for companies licensed by the Commodity Futures Trading Commission (CFTC).

The proposed amendment adds a “Prohibition on Sporting and Casino-Style Event Contracts.” As first reported by The Closing Line, the text further states, “No agreement, contract, or transaction relating to any Sporting Event or Athletic Competition or any Casino-Style Game may be listed or made available for clearing or trading on or through a registered entity.”

Prediction Markets Face Growing Legal Challenges

If enacted, it would clarify the legal status of sports markets, which have been challenged in multiple states.

This week, Tennessee became the ninth state to issue a cease-and-desist letter against a prediction market company. The state’s gambling regulator sent the orders to Crypto.com and Kalshi, who responded by filing a lawsuit. A judge granted Kalshi a temporary restraining order, allowing it to continue operations for the time being.

Kalshi has similar cases open in courts in seven states, with no definitive judgments on whether sports markets violate state laws, as many regulators claim.

In court, the company has argued that its operations are governed at the federal level and, therefore, are not a matter for states to regulate. An amendment to the CEA would clearly prohibit sports markets at the federal level.

CFTC Faces Pressure to Restrict Markets

The CEA already contains text that could be construed as prohibiting sports markets; one section of the act states that contracts on gaming are prohibited. However, the CFTC has not prevented companies from offering the markets.

Kalshi and others have argued that its markets are not gambling, but are based on events with real-world financial consequences. New markets become available on platforms through a self-certification process, and the CFTC has yet to reject any markets related to sports.

The CEA additionally prohibits contracts on war, terrorism, and assassination. However, Polymarket, which is now active in the US following CFTC approval, offers a range of markets on conflicts. Markets on military action in Israel and Ukraine have caused controversy.

One user made $400,000 wagering that Venezuelan President Nicolás Maduro would be out of office by the end of this month. Suspicions that insiders were behind the accounts have been raised by lawmakers. Senator Catherine Cortez Masto sent a letter to the CFTC earlier this week expressing concern.

An amendment to the CEA clearly prohibiting sports event contracts would leave little room for Kalshi and others to maneuver. Approximately 90% of Kalshi’s trading volume is related to sports.

The platform’s growth in popularity has attracted investor interest, leading to many companies launching their own prediction market platforms. That could all change if the amendment becomes law.

It is unclear how much support there is in Congress to move forward with the legislative change. For now, the amendment remains a draft and has not been officially proposed.