CFTC Moves to Separate Prediction Markets from Gambling
The Commodity Futures Trading Commission has issued two linked proposals that could settle one of the most contested jurisdictional questions in US financial regulation: are event contracts on sports, politics, and cultural outcomes commodity derivatives, or are they a form of gambling subject to state law? The answer has serious consequences for how accounting firms, auditors, and CFOs treat prediction-market positions, and for the compliance obligations that follow from each classification. Robust crypto accounting software is already being stress-tested by this ambiguity, and the CFTC's move adds urgency to getting the classification right before it is decided by a court.
What the Two CFTC Proposals Actually Say
The Commission released the proposals simultaneously, and they are designed to work as a pair. Understanding each one separately is necessary before considering their combined effect.
Proposal one: event contracts as swaps
The first proposal would formally define event contracts, including those tied to sports outcomes, political results, cultural events, and weather, as "swaps" under the Commodity Exchange Act (CEA). The CFTC's position is that these products are "commodity derivatives squarely within the CFTC's regulatory remit" and that federal law grants the agency exclusive jurisdiction over them. Chairman Michael Selig stated directly: "These products are commodity derivatives squarely within the CFTC's regulatory remit under the Commodity Exchange Act and are within the agency's exclusive jurisdiction." The proposal aims to eliminate any remaining ambiguity by codifying what the agency says has always been the correct interpretation of the CEA.
Proposal two: casino-style products excluded
The second proposal draws the boundary on the other side. It would codify that casino-style gambling products, including wagers placed on sportsbooks and conventional casino games, fall outside the swap definition. Selig described the logic plainly: "Casino-style gambling products are not derivatives. Just as the CFTC has done with respect to other products historically regulated by the states, the Commission today provides clarity regarding the limits of its regulatory remit by codifying the exclusion of casino-style gambling products from the 'swap' definition." Taken together, the two proposals are an attempt to draw a regulatory map: event contracts sit on the federal, CFTC-regulated side; casino wagering sits on the state-regulated side.
The Court Battles Behind the Proposals
The CFTC is not acting in a vacuum. These proposals are a direct response to active litigation between prediction-market operators and state gaming authorities, litigation that is now escalating toward the US Supreme Court.
The 6th Circuit ruling against Kalshi
In late September 2026, the 6th US Circuit Court of Appeals ruled unanimously against prediction-market operator Kalshi. A three-judge panel sided with Ohio and Tennessee, finding that Kalshi had not demonstrated its sports-event contracts qualify as swaps under the CFTC's jurisdiction. The implication was stark: states can regulate those contracts as gambling under their own laws. That ruling directly contradicts the CFTC's stated position and creates the conditions for a Supreme Court conflict.
The 3rd Circuit gave Kalshi a partial reprieve
An earlier, April 2026 decision by the 3rd Circuit Court of Appeals reached the opposite conclusion for New Jersey. That panel ruled Kalshi was likely to succeed in arguing that federal law preempts New Jersey's regulations, allowing the company to continue operating in that state while its appeal proceeds. Two circuit courts have now reached conflicting conclusions on the same underlying legal question. That circuit split is precisely the kind of disagreement the Supreme Court exists to resolve.
State lawmakers enter the picture
A group of state lawmakers has already filed an amicus brief urging the Supreme Court to take up the case, specifically asking the court to resolve whether state authorities or federal agencies hold jurisdiction over prediction-market companies. The CFTC's dual proposals appear designed to strengthen the federal position ahead of that potential Supreme Court review, giving the court a concrete regulatory framework to consider, not just an administrative assertion.
Why Classification Matters for Accounting and Reporting
For accounting professionals and finance teams, the swap-vs.-gambling distinction is not a legal technicality. It determines which accounting standards apply, which disclosure obligations attach, and how positions appear on a balance sheet or in a client's books.
The swap classification triggers derivatives accounting
If event contracts are formally codified as swaps under the CEA, any entity holding them is, in principle, holding a derivative. Under US GAAP, derivatives must generally be recognised on the balance sheet at fair value under ASC 815, with changes in fair value flowing through earnings unless the instrument qualifies for hedge accounting. Under IFRS 9, the logic is similar: a derivative is measured at fair value through profit or loss unless specific hedge accounting criteria are met. Firms that have been treating prediction-market positions as straightforward investments, or ignoring them entirely, will need to revisit that treatment the moment the swap label is formally attached.
Casino classification means a different ledger entry entirely
Products that fall into the casino-gambling bucket do not attract derivatives accounting. They are more likely to be treated as contingent liabilities, wager expenses, or gaming revenues depending on which side of the transaction the entity sits on. The accounting is simpler but governed by state law, which varies. For firms with clients operating across multiple states, that patchwork creates its own complexity in the ledger and in disclosures.
What good digital asset accounting software needs to handle now
Any digital asset accounting software or crypto bookkeeping software used by firms with prediction-market exposure should be capable of distinguishing between positions classified as swaps and those classified as gaming instruments. Mark-to-market engines, fair value hierarchies, and hedge-effectiveness testing are all relevant for the swap bucket. That is a materially different workflow from recording a sportsbook wager. Until the Supreme Court or the CFTC rulemaking process settles the question definitively, firms should build their record-keeping systems to accommodate both treatments and flag the classification assumption explicitly in workpapers.
Implications for Accounting Firms and CFOs
The CFTC's proposals are formally in proposal stage, meaning a comment period will follow before any rule is finalised. That timeline matters for practical planning.
Near-term steps firms should consider
First, audit existing client exposure. Any client operating a prediction-market platform, investing in one, or using event contracts for hedging purposes needs a classification memo now, before a final rule or Supreme Court decision forces a retrospective restatement. The classification assumption should be documented and signed off at the engagement level.
Second, review the disclosure language in financial statements. If a client holds event-contract positions that are material, the uncertainty over their regulatory classification is itself a disclosure item under ASC 450 (contingencies) and the equivalent IFRS provisions. The pending litigation and the unresolved circuit split are facts that auditors should be comfortable disclosing.
Third, monitor the comment period. The CFTC will accept public comment on both proposals. Industry associations, trading venues, and legal counsel will file responses that may shape the final rule. Firms advising clients in this space should track those submissions, as they often foreshadow how the final rule differs from the proposal.
Fourth, consider how existing crypto accounting workflows interact with prediction-market instruments. If a client's portfolio sits inside a broader digital asset fund or treasury operation, the swap classification could affect net asset value calculations, margin requirements, and counterparty risk disclosures in ways that need to be isolated from spot crypto positions.
For deeper context on how the CFTC's wider regulatory agenda is taking shape, see our analysis of the CFTC's broader crypto regulatory framework and the piece covering US crypto market structure and political durability.
The Bigger Picture: Federal vs. State Jurisdiction
The CFTC's proposals are as much a statement of institutional authority as they are a technical rulemaking exercise. By formally claiming that event contracts are swaps and therefore exclusively within federal jurisdiction, the Commission is issuing a direct challenge to the states that have sued prediction-market operators. Several states, including Ohio and Tennessee, have argued that these products are gambling and subject to their gaming laws. The CFTC's counter-position is that federal law under the CEA preempts those state regulations entirely.
That conflict is now playing out simultaneously in the courts and in the regulatory rulemaking process. The circuit split between the 6th and 3rd Circuits means the Supreme Court has a concrete legal disagreement to resolve. The CFTC's proposals, once finalised, would give the court a formal regulatory framework on the federal side. The outcome will determine not just the fate of Kalshi and Polymarket but the legal architecture for the entire event-contract industry in the United States, and, by extension, the accounting treatment firms must apply to any exposure to that industry.
For accounting and finance professionals, the prudent position is to treat the question as unresolved, document the classification assumption clearly, and build workflows flexible enough to adapt when the answer arrives, whether from a Supreme Court ruling, a final CFTC rule, or both.
Frequently Asked Questions
What is the CFTC proposing, in plain terms?
The CFTC has put forward two proposals: one that would formally classify event contracts (on sports, politics, weather, and cultural events) as "swaps" under federal commodity law, and a second that explicitly excludes conventional casino gambling products from that same classification. The goal is to establish clear federal jurisdiction over prediction markets while leaving casino wagering to state regulators.
How does the swap classification affect accounting treatment?
If event contracts are formally defined as swaps, any entity holding them must generally account for them as derivatives. Under US GAAP that means fair value recognition on the balance sheet under ASC 815, with unrealised gains and losses flowing through the income statement unless hedge accounting applies. IFRS 9 follows a similar logic. Firms that have not been applying derivatives accounting to prediction-market positions need to revisit their treatment immediately.
Are these proposals already in force?
No. Both measures are proposals at this stage. They will go through a formal comment period before any final rule is issued. The litigation in the courts, including the potential Supreme Court case, may resolve the underlying jurisdictional question before or alongside the rulemaking process.
What is the significance of the circuit court conflict?
The 6th Circuit ruled that states can regulate Kalshi's sports-event contracts as gambling, while the 3rd Circuit found that federal law likely preempts New Jersey's regulations. Two federal appellate courts have reached opposite conclusions on the same question. That disagreement is a classic trigger for Supreme Court review, and a group of state lawmakers has already filed a brief urging the court to take the case.
What should accounting firms do right now?
Identify any clients with prediction-market exposure, document the current classification assumption in workpapers, and review whether material positions require contingency disclosures given the regulatory and litigation uncertainty. Build record-keeping systems in your crypto accounting software to accommodate both swap and non-derivative treatments, and track the CFTC comment period for signals about how the final rule may differ from the proposals.
Source: Cointelegraph