The burgeoning debate over the regulatory home for sports betting has taken a concerning turn, with entities like Kalshi advocating for its classification as an “event contract” under the Commodity Futures Trading Commission (CFTC). However, this push represents a perilous overreach, flying in the face of established precedent, sound public policy, and the very definition of economic utility that underpins federal oversight.
For decades, the regulation of sports betting has resided firmly at the state level, a pragmatic approach recognizing its primary nature as recreational wagering. This decentralized framework allows for tailored rules reflecting local contexts and values. The Supreme Court’s decisive ruling in Murphy v. NCAA unequivocally reaffirmed this state authority, explicitly reserving the governance of sports gambling to individual states, not federal agencies.
The linchpin of Kalshi’s argument appears to hinge on the CFTC’s Rule 40.11(a)(1), which prohibits contracts “based on… gaming.” While this rule rightly aims to prevent the trading of agreements lacking genuine economic purpose and potentially detrimental to the public interest, its application to sports outcomes is a fundamental mischaracterization. CFTC jurisdiction is appropriately reserved for contracts that:
- Are based on commodities or financial indicators
- Serve a commercial risk management or hedging function
- Offer price discovery for economic participants
Sports outcomes unequivocally fail on all three counts. They are the unpredictable result of athletic competition, driven by skill and chance, not by underlying economic forces. Unlike agricultural goods or financial instruments, their value is solely derived from entertainment and speculative interest.
The notion that sports outcomes offer real-world hedging utility for businesses is tenuous. While tangential impacts on media or advertising exist, these are indirect correlations, not the direct, quantifiable exposures that necessitate CFTC oversight. A broadcaster doesn’t hedge against a team’s loss with a futures contract; they manage risk through diverse programming and advertising strategies.
Furthermore, the “economic benefit” of sports betting lies primarily in entertainment and individual winnings, a far cry from the price discovery and risk management functions vital to CFTC-regulated markets. The speculative engagement of fans does not equate to the broad economic utility the CFTC is tasked with overseeing.
The argument drawing parallels to contracts on entertainment events like reality TV outcomes further underscores why sports betting should remain outside CFTC jurisdiction. Both lack the fundamental economic utility that warrants federal oversight. Legitimate businesses do not utilize contracts on reality show winners or sports outcomes to hedge tangible financial risk.
The most important—and overlooked—element to be considered is the net economic utility test: Net Economic Benefit = Economic Gains – Economic and Social Costs.
While sports betting provides entertainment and generates tax revenue, it also imposes measurable harms:
- Gambling addiction and public health burdens,
- Regulatory enforcement and compliance costs,
- Match-fixing, corruption, and undermined sports integrity,
- Negative spillovers to financially vulnerable populations.
These social costs outweigh the limited recreational or fiscal benefits, especially at the national scale proposed by Kalshi. Granting CFTC oversight would expand—not mitigate—those harms.
In conclusion, the attempt to classify sports betting as a CFTC-regulated “event contract” is a misguided endeavor. It risks disrupting a well-established state-regulated industry, imposing unnecessary federal bureaucracy on recreational activity, and diverting the CFTC’s attention from its core responsibilities in overseeing critical commodity and financial markets. For the sake of regulatory clarity, economic logic, and established precedent, the CFTC must firmly reject this regulatory gamble.
