Congress should not remain on the sidelines while courts, state regulators and the Commodity Futures Trading Commission (CFTC) fight over the future of sports prediction markets, the chairman of a House Agriculture subcommittee said Tuesday.
The hearing offered no clear consensus on whether sports event contracts should be treated as federally regulated derivatives or gambling products subject to state and tribal laws. But members from both parties repeatedly questioned whether the existing framework adequately protects younger traders and prevents insider trading and manipulation, as well as whether the understaffed CFTC has enough capacity to oversee the growing market.
“The commission is acting in this space,” Subcommittee Chairman Dusty Johnson (R-S.D.) said in his closing remarks. “I do not believe that the committee, that Congress, should be silent. I do think there is work for us to do here.”
The hearing, titled “Examining Customer Protections and Market Integrity in Sports Event Prediction Markets,” brought together lawyers and a market-surveillance expert who defended the CFTC’s authority alongside representatives of the American Gaming Association (AGA) and Indian Gaming Association (IGA), who argued that platforms such as Kalshi and Polymarket are using federal registration to operate what amount to nationwide sportsbooks.
The sharpest disputes centered on whether the Commodity Exchange Act (CEA) preempts state gambling laws, the conflict between a Michigan court order and a subsequent CFTC emergency directive, and the promotion of sports contracts to customers as young as 18. Johnson said Tuesday’s hearing would not be Congress’ last examination of prediction markets and identified CFTC resources, market integrity and customer protection as issues the committee still needs to explore.
Are sports contracts derivatives or bets?
The central disagreement was whether sports event contracts are a new category of federally regulated financial product or simply sports wagers offered under a different name.
Christopher Cylke, senior vice president of government relations at the AGA, told lawmakers the economic substance of the products matters more than the terminology platforms use to describe them.
“Let’s be clear — so-called sports event contracts are sports betting,” Cylke said. “A customer puts money on a sports outcome and gets paid if they are correct. Forty-one state attorneys general agree. These products are sports betting and must be subject to state gambling laws.”
Carl Kennedy, a derivatives partner at Katten Muchin Rosenman, rejected that premise. He argued that Congress intentionally wrote the CEA broadly enough to cover new products traded on federally regulated exchanges.
“That’s why Congress wrote the words commodity and swap broadly,” Kennedy said. “Not because it wanted a free-for-all, but because it knew new products would keep showing up, and it wanted the CFTC to be ready for them. Making room for that kind of innovation is exactly what Congress demanded of the CFTC.”
“Sports event contracts are just the newest product to walk through that door,” Kennedy added.
Robert Schwartz, a Morgan Lewis & Bockius partner who previously served as CFTC general counsel, similarly argued that federally registered exchanges operate within a comprehensive derivatives framework, not outside regulation altogether.
States and tribes warn of “backdoor sportsbooks”
Cylke said the dispute has spread across the country because prediction market platforms are using CFTC registration to bypass the state-by-state systems governing legal sports betting.
“Litigation has reached nine federal appeals courts, and lawmakers across the country are responding for one simple reason: These platforms are running backdoor sportsbooks,” he said.
IGA Chairman David Bean made a similar argument on behalf of tribal gaming interests, warning that nationwide sports event contracts threaten authority states and tribes negotiated through the Indian Gaming Regulatory Act (IGRA) and tribal-state compacts.
The classification dispute carries consequences far beyond terminology. It determines whether platforms must obtain licenses in each state, whether customers generally must be 21 to use a sportsbook or 18 to trade on a prediction market, which consumer-protection and responsible-gaming/trading standards apply and whether state and tribal regulators can prevent the contracts from being offered within their borders.
Gaming revenue continues to grow despite diversion claims
Cylke and Bean also argued that sports prediction markets are diverting business from state-regulated sportsbooks and tribal gaming operations while avoiding taxes, licensing fees and revenue-sharing obligations.
“Sports betting on prediction markets like Kalshi and Polymarket makes a mockery of congressional intent, is stripping your constituents of important consumer protections, and costing your communities a fortune in lost tax revenue,” Cylke said.
The AGA, Cylke said, estimated that states and tribes have lost more than $1.2 billion in gaming tax revenue since prediction markets began offering sports event contracts.
“This sum is snowballing by the day, and that money should be supporting education, infrastructure, public safety, responsible-gaming programs, and tribal communities,” Cylke said.
But regulated gaming revenue has continued to grow alongside prediction markets. The AGA reported that commercial gaming revenue reached a record $78.7 billion in 2025, up 9.2% from the previous year. Sports betting revenue increased 22.8% to nearly $17 billion, while taxes generated by state-regulated sportsbooks climbed 32.4% to $3.71 billion.
The National Indian Gaming Commission also reported Tuesday that tribal gaming revenue increased 5.3% to a record $46.2 billion in fiscal year 2025.
Those figures do not rule out revenue diversion, particularly because sports event contract trading expanded substantially in 2026 and the cited revenue totals cover 2025. Sportsbooks, tribes and state governments could still be collecting more in the absence of prediction markets. But the record results provide little evidence, at least so far, of a broad contraction in regulated gaming.
Prediction markets open sports trading to younger customers
The dispute also extended to who can use the platforms. CFTC-regulated prediction market platforms generally permit customers at 18, while nearly all state-regulated sportsbooks require users to be at least 21.
“Marketing sports contracts as investing is also misleading and dangerous,” Cylke said, “especially for younger consumers who may believe betting on sports is a financial strategy rather than entertainment with a real risk of loss.”
Bean accused prediction market operators of targeting younger customers through social media and presenting sports trading as a way to make money.
“Prediction markets target young people and those in jurisdictions where sports betting is prohibited,” Bean said. “They advertise on TikTok and hire influencers who claim that they are a side hustle without revealing the true risks of gambling.”
“In fact, one CEO attempted to equate sports contracts to financial literacy,” he continued. “This is both misleading and dangerous. Today, thanks to a one-person agency, every teenager with a smartphone can now lose their shirt without leaving their house or dorm room. We’re only starting to see the devastating impact on our kids’ mental health and financial security.”
Supporters of prediction markets disputed the broader claim that the platforms operate without customer safeguards. Asked whether CFTC-regulated exchanges lacked age verification, know-your-customer (KYC) rules and integrity monitoring, Asaf Meir, co-founder and CEO of Solidus Labs, said that had not been his experience.
“CFTC-regulated venues are gathering all the information you’ve just mentioned,” Meir said. “In fact, they compile it into a larger superset of data to understand whether or not market manipulation is taking place.”
Single-actor contracts raise manipulation concerns
Members also focused on whether certain sports contracts are especially vulnerable to manipulation or insider trading, particularly markets where a single player, official or other participant can influence the outcome.
Meir said monitoring becomes more difficult when exchanges offer numerous related contracts around the same game or tournament.
“That’s actually relatively simple to solve,” Meir said of monitoring an individual market. “But the complexity arises in the related sports contracts. So around every tournament, there are multiple other event contracts that essentially expand the attack surface where you also need to be able to correlate those contracts to the main event contract, then whether or not bad actors are possibly manipulating cross-product in that regard.”
Kennedy said the CFTC has directed exchanges to address those risks when submitting contracts for review.
“The commission has made clear, not only in the proposal that it released in June, but also in an advisory that it issued in, I believe, March of this year, that they do expect that those self-certifications be comprehensive, to explain the risks, to address settlement risks, especially around single-actor contracts, that the single actor could influence inappropriately the outcome of the event contract and the settlement of that contract,” Kennedy said.
Kennedy said the CFTC’s proposed event contract rule distinguishes between contracts on broad sporting outcomes and those involving “single actors or integrity-sensitive sporting events,” including injuries and officiating decisions.
Lawmakers question whether the CFTC has enough resources
Even witnesses who defended the CFTC’s authority faced questions about whether the agency has enough people, expertise and leadership to oversee rapidly expanding prediction markets alongside its traditional responsibilities.
Ranking Member Angie Craig (D-Minn.) noted that the CFTC reduced its workforce by 20% last year while the agency took on growing responsibilities involving prediction markets and digital assets. She also emphasized that current CFTC Chairman Michael Selig remains the agency’s only commissioner.
“If someone tries to tell me that in the seven months that Mr. Selig has been chairman of the agency, that they have acquired all the expertise necessary to understand and surveil these different events traded on prediction markets, including sports, frankly, I wouldn’t believe them,” Craig said.
“If we want safe markets, if we want innovation without exploitation, if we want risk-management tools that serve all Americans, then we must give the CFTC the staff and the funding it needs to do its job,” she added.
Chairman Johnson agreed that the commission needs additional members.
“Of course, you’re exactly right about us needing more CFTC commissioners,” Johnson said. “One is — Chairman Selig is wonderful, but we would take four more.”
Rep. Shomari Figures (D-Ala.) similarly warned that adding new responsibilities without increasing the agency’s capacity could weaken its oversight elsewhere.
“If we continue to expand the agency’s responsibilities without expanding its capacity, something inevitably will get left behind,” Figures said. “And for the farmers, businesses, consumers, and investors who rely on these markets, that is simply unacceptable.”
Michigan orders put Kalshi in the middle
The clash between federal and state authority became concrete when Rep. Kristen McDonald Rivet (D-Mich.) questioned witnesses about conflicting directives issued to Kalshi in Michigan.
A state court ordered Kalshi to close sports event contract positions held by Michigan residents. Kalshi had already unwound the contracts by the time the CFTC invoked its emergency authority and directed the exchange to preserve the positions and allow them to settle normally.
“The chairman has every right to disagree,” McDonald Rivet said. “But he did not just urge them to appeal. He issued an order forcing Kalshi to defy the court’s orders, which put Kalshi in a really unenviable position of having to choose between ignoring a court order or ignoring a commission order, both of which actually put Kalshi at risk of civil penalties.”
Schwartz called the CFTC’s intervention “an extraordinary action” that showed the need for clearer lines of authority, noting that it had been 46 years since the commission had issued an order under its emergency authority.
“An exchange like Kalshi is caught in the middle of its federal regulator and a court order,” Schwartz said. “I don’t know what the best advice would be.”
Johnson outlines four areas for action
Johnson closed the hearing with four takeaways, beginning with questions about whether the CFTC has sufficient resources to oversee the growing market.
“Number one, the CFTC does have some important work before it,” Johnson said. “It is used to doing more with less, and yet I do think resource adequacy is a legitimate question the committee should continue to explore.”
His second point was that the opposing sides agreed about the goals, even as they differed sharply over how to achieve them.
“Everybody agrees about the importance of market integrity and customer protection,” Johnson said.
That led to his third takeaway, that Congress must determine whether regulators already have the authority and resources needed to meet those goals.
“I do think this subcommittee needs to continue to explore whether or not there are sufficient tools to ensure market integrity and customer protection,” Johnson said.
Johnson’s final point was that Congress should not remain silent while the CFTC and courts shape the market’s regulatory future. He said the committee would continue looking for common ground and determining whether additional legislation was necessary.
“This will not be the last hearing we have in this space,” Johnson said. “I think we have an obligation to try to drive toward finding out what is the common ground.”
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