Sports event contracts explained: bets, swaps or both?
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How US courts & the CFTC have treated sports event contracts so far, & why judges disagree on whether they are derivatives or wagers.
What a sports event contract is
The CFTC said on 10 June 2026 that it has continued to observe growth in the number & variety of event contracts listed for trading by CFTC-registered entities, including contracts referencing sporting events. The Third Circuit majority held that Kalshi’s sports-related event contracts satisfy the swap definition in the Commodity Exchange Act because they provide for payments “dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence”, according to a Law360 analysis by Johnny ElHachem dated 12 May 2026.
These contracts are traded on designated contract markets, or DCMs, registered with the US Commodity Futures Trading Commission (CFTC).
According to the Law360 analysis, the Ninth Circuit heard consolidated oral arguments on 16 April 2026 in cases involving Kalshi, Robinhood & Crypto.com challenging the Nevada Gaming Control Board.
According to a Lowenstein Sandler client alert dated 24 March 2026, event contracts were at that date fully collateralised. The alert says that “any move toward margin trading would carry significant implications for retail customers and clearing.” The CFTC asked for comment on whether margin should be permitted.
How it differs from a sportsbook bet
One of the platforms’ arguments rests on market structure. According to the Law360 analysis, at Ninth Circuit oral arguments on 16 April 2026, counsel for Crypto.com argued that DCM contracts are trades placed on an open market with a clearinghouse intermediary, rather than bets against the house.
Judge Ryan D. Nelson rejected the distinction, the Law360 analysis reports: “This is sophistry to the Nth degree … I don’t understand how you can say that those are different.”
In the Third Circuit, according to the Law360 analysis, Judge Jane R. Roth called Kalshi’s products “virtually indistinguishable from the betting products available on online sportsbooks”.
The sources used here do not compare fees, pricing or the ability to exit a position before a game ends, so this guide does not cover those points.
Swap or wager? What the courts said
According to the Law360 analysis, one of the questions the Third Circuit addressed was whether Kalshi’s sports-related event contracts qualify as “swaps” under the Commodity Exchange Act (CEA). Pre-emption is the principle that federal law overrides conflicting state law. The other question, the analysis says, was whether the CEA pre-empts New Jersey’s gambling laws as applied to those contracts when traded on a CFTC-registered DCM.
On 6 April 2026 a divided Third Circuit panel ruled in KalshiEx LLC v. Flaherty. According to the Law360 analysis, it became the first federal appeals court to hold that the CEA pre-empts state gambling laws as applied to sports-related event contracts traded on DCMs.
Judge David J. Porter wrote the majority opinion, joined by Chief Judge Michael A. Chagares. According to the Law360 analysis, they held that the contracts are swaps, a threshold the analysis says was easily met given the documented financial impact of sports outcomes on sponsors, advertisers, networks & communities. The majority also found that both field & conflict pre-emption applied. Field pre-emption means federal regulation is so comprehensive that it leaves no room for state law in a given area. Conflict pre-emption means compliance with both federal & state law is impossible, or state law stands as an obstacle to federal objectives.
The ruling upheld a preliminary injunction issued on 28 April 2025 that barred New Jersey from enforcing its gambling laws against Kalshi. The Law360 analysis stresses that this remains a preliminary injunction ruling. The court found only that Kalshi had “a reasonable chance, or probability, of winning”, & the case returned to the district court for full merits adjudication.
Judge Roth dissented. According to the Law360 analysis, she conceded that a plain reading of the CEA suggests the contracts fit the swap definition. She argued, however, that the presumption against pre-emption should apply with “special force”. She also argued that CFTC Rule 40.11(a)(1), which prohibits DCMs from trading gaming contracts, undermines the conflict pre-emption argument.
On 24 April 2026, according to the Law360 analysis, the Sixth Circuit denied Kalshi an injunction pending appeal in Kalshi v. Schuler, a case arising from Ohio’s enforcement of its sports betting laws against Kalshi. The court said Kalshi “has raised serious questions on the merits” but found the pre-emption arguments “largely in equipoise (if not favoring Ohio)”.
In Nevada, according to the Law360 analysis, the US District Court found that sports event contracts are not swaps. That ruling was under appeal at the Ninth Circuit in May 2026.
In a separate case, the Ninth Circuit ruled 3-0 for two California tribes, the Blue Lake Rancheria & the Chicken Ranch Rancheria of Me-Wuk Indians, according to CDC Gaming. The tribes had sued Kalshi & Robinhood in 2025. The court found that Kalshi’s sports contracts are Class III gaming under the Indian Gaming Regulatory Act (IGRA).
Judge Margaret McKeown wrote that each contract was “an act of placing a bet or wager”. She added: “The similarities between a sports-event contract, which even Kalshi calls ‘sports betting,’ and a traditional sports wager are overwhelming.” The case was sent back to the district court, & CDC Gaming reported that Kalshi was considering whether to appeal.
CDC Gaming also reports that the Ninth Circuit separately ruled that Kalshi was subject to oversight by the Nevada Gaming Control Board.
What the CFTC has done
On 4 February 2026, according to its press release, the CFTC withdrew its “Event Contracts” rule proposal, first published on 10 June 2024, & said it does not intend to issue final rules with respect to it. Staff also withdrew Staff Letter 25-36, a Staff Advisory on Certain Contract Markets issued on 30 September 2025, which Chairman Michael S. Selig called the 2025 sports event contracts advisory.
Chairman Selig said the advisory “inadvertently created confusion and uncertainty for our market participants”. He also said the 2024 proposal included “an outright prohibition on political contracts”.
On 16 March 2026, according to Lowenstein Sandler, the CFTC published an Advance Notice of Proposed Rulemaking (ANPRM). The ANPRM invited public comment on issues including how the CEA & CFTC regulations apply or should apply to event contracts, & the comment deadline was 30 April 2026. Lowenstein Sandler says the CFTC’s Division of Market Oversight contemporaneously issued Staff Advisory No. 26-08 on DCMs’ obligations when listing & surveilling event contracts.
On 10 June 2026, according to the CFTC, it proposed amendments to Regulation 40.11 & a new Appendix F. The CFTC says the proposal would establish a framework for evaluating whether a contract involves terrorism, assassination, war, gaming or conduct that is unlawful under federal or state law, &, if so, whether it is contrary to the public interest.
The CFTC says the proposal sets out a 90-day review process & a set of public interest factors it would apply contract by contract. It also defines the terms “involve” & “gaming”.
Integrity & insider risk
Staff Advisory 26-08 sets out staff expectations on manipulation analysis, settlement data sources, product submissions & engagement with sports leagues & governing bodies. Lowenstein Sandler notes that the advisory is informative rather than binding.
According to Lowenstein Sandler, the ANPRM asks how surveillance should address asymmetric information in markets where outcomes may be controlled by small groups or individuals. It also asks what factors should guide DCMs in establishing resolution criteria & dispute resolution procedures for event contracts, a question Lowenstein Sandler says reflects the Commission’s awareness of disputes over how event contracts settle.
According to Lowenstein Sandler, the CFTC’s Enforcement Division had issued a prediction markets advisory discussing two recent insider trading disciplinary matters at DCMs before the ANPRM was published.
The numbers
According to a Pew Research Center analysis published on 23 September 2026, combined monthly volume on Kalshi & Polymarket rose from $26 billion in May 2026 to $53 billion in July 2026. Pew says the rise was mostly due to a large uptick in sports trading.
Pew’s category table, which gives monthly volume in millions, lists July 2026 sports volume of 31395.7 for Kalshi & 10618.5 for Polymarket.
Across June & July 2026, which coincided with the FIFA World Cup, sports trading topped $58 billion on Kalshi & neared $22 billion on Polymarket, according to Pew. For comparison, Pew says Americans wagered around $40 billion on legal sportsbooks in the first quarter of 2026, about on par with combined prediction-market sports volume over the same period.
What to watch
The Law360 analysis said a split between appeals courts on whether sports contracts are swaps would dramatically increase the likelihood of Supreme Court review. It also noted the Fourth Circuit’s hearing in Kalshi v. Martin, a case involving Maryland gaming regulators, where the panel questioned both sides on 7 May 2026.
On 5 May 2026, according to the Law360 analysis, the US District Court for the District of Arizona granted a preliminary injunction sought by the CFTC & the Department of Justice in Arizona v. Kalshi. The analysis calls it the first such relief obtained by the federal government itself.
On the regulatory side, the 10 June 2026 proposal covers only one part of the March ANPRM, & the CFTC says the ANPRM may lead to further rulemaking. Gaming attorney Daniel Wallach told CDC Gaming that the tribal ruling “could open the floodgates for lawsuits against Kalshi”.
Questions
Are sports event contracts legally swaps?
Courts disagree. According to the Law360 analysis, on 6 April 2026 the Third Circuit majority held that Kalshi’s sports contracts satisfy the CEA swap definition, while the US District Court in Nevada found that sports event contracts are not swaps.
Can states regulate sports event contracts?
As of May 2026, it depended on the court. According to the Law360 analysis, the Third Circuit upheld a preliminary injunction barring New Jersey from enforcing its gambling laws against Kalshi, finding only that Kalshi has “a reasonable chance, or probability, of winning”, & the case returned to the district court. The Sixth Circuit found the pre-emption arguments “largely in equipoise (if not favoring Ohio)”.
What did the Ninth Circuit decide about tribal lands?
In a 3-0 ruling reported by CDC Gaming, it found that Kalshi’s sports contracts are Class III gaming under IGRA & that two California tribes were likely to succeed in their claims. The case was sent back to the district court.
What is the CFTC’s 10 June 2026 proposal?
According to the CFTC, it would amend Regulation 40.11 & add Appendix F to set a framework for evaluating whether contracts involve listed activities, including gaming. It would also define “involve” & “gaming” & apply public interest factors contract by contract.
How much prediction-market trading is on sports?
Pew Research Center says sports is now the most traded topic on both Kalshi & Polymarket by a large margin. Pew’s category table, which gives figures in millions, lists July 2026 sports volume of 31395.7 for Kalshi & 10618.5 for Polymarket, & Pew puts combined July 2026 volume on the two platforms at $53 billion.
Sources
Sources checked 11 October 2026. Information only. 18+.
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