The US government is making its clearest case yet that sports betting can be regulated as finance, not gambling.
In a filing late Tuesday, the Commodity Futures Trading Commission and the Justice Department asked a federal court to block Arizona from enforcing its gambling laws against prediction market operator Kalshi. The agencies argue that contracts tied to sports, elections and other real-world events are financial derivatives known as “swaps,” placing them under federal oversight.
If the courts agree, it could shift control of a fast-growing market away from states and into Washington, allowing prediction platforms to operate nationwide under a single set of rules.
But at the heart of the matter is a simple question: what exactly constitutes a bet?
Arizona and a growing number of states say sports performance contracts work like traditional betting and should be regulated like gambling, with licensing requirements, age restrictions and consumer protections.
However, Arizona has gone further than most, filing criminal charges against Kalshi under the state’s betting laws, with a trial scheduled for April 13.
Federal regulators see it differently. In their filing, they argue that what matters is how the contracts are structured, not what they track. Because the payouts depend on the occurrence of a future event and that event may have financial consequences, the products fall under the same legal framework as derivatives linked to commodities or interest rates.
That interpretation would put the prediction markets firmly under 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, something regulators warn would otherwise create a fragmented, state-by-state system.
The legal battle has been building for months and is now beginning to produce conflicting rulings. As CoinDesk previously reported, a federal appeals court in New Jersey recently sided with Kalshi, finding that its sports contracts are presumptively permissible under federal law unless the CFTC intervenes. But courts in other jurisdictions have been more receptive to state arguments, allowing enforcement cases to move forward.
In its filing, the government warned that allowing states to prosecute federally regulated exchanges would undermine a national market that Congress intended to oversee at the federal level.
If the courts ultimately accept the CFTC’s position, prediction markets could operate nationwide under a single federal framework, effectively bypassing the state-by-state system that governs sports betting today. If they reject it, the products could be forced into existing gambling regimes or shut down altogether in key jurisdictions.
For now, the federal government is taking an expansive 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 that comparison holds up.
