WASHINGTON, D.C. — The Commodity Futures Trading Commission (CFTC) has submitted two rules on prediction markets to the White House Office of Information and Regulatory Affairs (OIRA) for review. In response, the American Economic Liberties Project released the following statement: 

“It is clear to anyone paying attention that prediction markets are just a cover for gambling,” said Ashley Nowicki, a senior policy analyst at the American Economic Liberties Project. “Calling a bet a ‘swap’ or a prediction doesn’t change what it is. The CFTC is attempting to put its thumb on the scale in a battle over legal definitions, before  the Supreme Court can weigh in.” 

“But while lawyers and regulators play games with definitions, this ‘industry’ is having real-world consequences,” Nowicki continued. “Kalshi, Polymarket, and other industry players have incentivized rampant insider trading and information manipulation, eroding public trust. They facilitate betting on abhorrent or unlikely events, marketing the industry as a fun and innovative way to engage in culture, politics, or sports and make money. But in reality, these companies are preying on vulnerable people and the very real frustration with our current economic system, draining household finances in the middle of an affordability crisis. Interim final rules are meant for emergencies. But the real emergency here is the prevalence of these bets and the amount of money people lose.” 

Background

On September 28, the CFTC sent OIRA two rules. The first is a proposed rule, “Further Definition of ‘Swap’ to Include Event Contracts,” which would go through public comment. The second is an interim final rule, “Further Definition of ‘Swap’ to Exclude Casino-Style Gambling Products,” which would take effect as soon as it is published, bypassing the notice-and-comment process – that allows the public to weigh in – federal law normally requires. The text of neither rule has been made public.

The rules arrive in the middle of an ongoing legal battle between the federal government and the states over who has jurisdiction over prediction markets. Prediction market companies insist they are not enabling gambling. Instead, they say they offer “event contracts” on designated contract markets, which they describe as financial swaps people can use to hedge against financial risk. The platform acts as the middleman and collects transaction fees. This framing lets companies avoid state gambling regulations by claiming their bettors are entering into investment contracts with a real person on the other side. In reality, it is just another form of gambling.

By labeling only “casino-style” products as gambling, the CFTC’s interim rule implies that bets on sports, elections, and world events are something else. That is the exact question now dividing federal appeals courts, and the Supreme Court appears poised to weigh in. And even if you believe these are event contracts and not gambling, Congress still explicitly prohibited event contracts or any transactions that involve “war”, “gaming”, or “activity contrary to the public interest” – which are the bulk of bets being placed on these sites. And casino-style gambling is as easy as taking your phone out of your pocket, as the widespread use of smart phones has allowed these apps to proliferate. The consequences are as bad as could be predicted. One study found that online gamblers bet more frequently, spent (and lost) more money, placed riskier bets, and dealt with more financial challenges including missing bill payments than those who bet in person.

States have historically held jurisdiction over gambling. But the industry–friendly Trump CFTC is seeking “exclusive jurisdiction” over these markets, with the support of Donald Trump Jr. and the companies that stand to benefit from a single, sympathetic regulator. Current Chair Michael Selig once represented cryptocurrency and prediction market clients, while Trump Jr. holds a paid advisory role and equity at Kalshi, and his venture firm,1789 Capital, is one of Polymarket’s largest investors.

The CFTC is normally a five-member bipartisan commission. Chair Selig, nominated by President Trump, is currently its only commissioner, so he controls the agency unilaterally, with no check from other members. At his confirmation hearing, Selig told senators it would be best for the CFTC to defer to the courts on the core legal question facing Kalshi and Polymarket. He now argues that states cannot regulate these platforms at all, and has taken a number of unprecedented steps to cut states out of the picture altogether.

These rules will not come without consequences. Gambling already leads to financial hardship, mental health and relationship struggles, and a large transfer of wealth from ordinary people to the companies and their executives. Prediction markets are especially dangerous because they reward insider trading and allow betting on things from war, to wildfires, to the result of clinical trials. Kalshi’s own co-founder and CEO, Tarek Mansour, has been open about the ambition: “The long-term vision is to financialize everything.”

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