CFTC stands down, seeks dismissal in election betting appeal
The fight over legal election betting in the US looks to have swung considerably, and perhaps definitively, in favour of prediction markets.
On Monday the Commodity Futures Trading Commission submitted a motion for voluntary dismissal to end its appeal against Kalshi, the New York-based exchange that has taken the sports betting industry by storm. The case was being heard by the US Court of Appeals for the DC Circuit.
As part of the dismissal, Kalshi also “waives any and all claims relating to or arising from litigation of this matter before this Court, the district court, or administrative proceedings before the Commission”.
“Election markets are here to stay,” Kalshi CEO Tarek Mansour posted on X. “Prediction markets have been banned, censored, limited, and pushed out for decades. This win solidifies their right to exist and thrive.”
Case was more than a year in the making
The request for dismissal ends the legal arguments between Kalshi and the CFTC. The pair had long fought under the Biden administration but stopped when President Donald Trump took office in January. Kalshi originally self-certified its election contracts in June 2023, and the CFTC disallowed them in September that year.
That kicked off a federal court battle in which the markets were pulled and then ultimately greenlit last October when the appeals court ruled in favour of Kalshi. The platform and others then saw billions of dollars in trading volume on election contracts in the November cycle. At the time, the CFTC vowed to continue its fight, but that course has now been reversed.
In the court’s October ruling, Judge Patricia Millett conceded that the case was “close and difficult”. Ultimately, though, the three-judge panel found that the CFTC had failed to demonstrate how the election contracts would result in public harm, which was part of its argument for disallowing them. This failure was “fatal to the Commission’s stay request”, Millett wrote.
The times, they are a-changin’
Until this year, the CFTC had staunchly enforced its prohibitions on contracts involving elections or gaming. But Kalshi has so far successfully maintained that prediction markets are financial exchanges with real economic hedging benefits. The platforms allow users to buy and trade contracts tied to event outcomes, much like traditional commodities exchanges but greatly expanded.
The appeals court ruling mixed with a correct prediction of Trump’s landslide victory signalled that the tide could be turning. A week before Trump took office, his son Donald Trump Jr. was named as an adviser to Kalshi. Trump Jr. said in an X post that “my family and close friends used the prediction market Kalshi to know we won hours ahead of the fake news media. I immediately knew I had to contribute to their mission.”
On 12 February, Trump nominated Brian Quintenz, a Kalshi board member, as the next CFTC chair. Quintenz previously served as a commissioner during Trump’s first term and was outspoken in his support of prediction markets.
A whole new ballgame
When the fight was just centred around election betting, the gaming industry was unmoved. However, when the exchanges began to expand into sports earlier this year, concern skyrocketed.
In response, the CFTC in early February announced its intention to host a roundtable on sports contracts. Few details were ever confirmed publicly, but comments opposing the markets have poured in to the CFTC site. Ultimately, the discussion planned for 30 April was abruptly canceled with no details of if or when it will be rescheduled.
In the meantime, numerous state gaming regulators have issued cease-and-desist orders against the markets, claiming they constitute illegal gambling. Kalshi has countersued in three states thus far — Nevada, New Jersey and Maryland — and has won preliminary injunctions in the first two. These rulings, mixed with the cancelled roundtable and CFTC appointments, appear to suggest that sports markets could ultimately be approved, just as election betting now appears to be.
CFTC the next gambling regulator?
Now that the momentum is swinging towards approval, a key question is what the CFTC’s role might be moving forward.
If the commission decides to allow full-fledged prediction markets, it would then become a pseudo-national gambling regulator, something it argued vehemently against as recently as last fall. Industry analyst Steve Ruddock addressed this question on his Straight to the Point newsletter Monday:
“The Commodity Futures Trading Commission (CFTC) had a total workforce of 699 employees in 2010; newer data is less precise, estimating the CFTC’s workforce to be between 250 and 1,000,” he wrote. “The CFTC’s 2025 budget request was $399 million and 725 full-time employees. That’s to oversee everything, not just prediction markets.”
Ruddock said that AI-generated estimates for staff at a national sports betting regulator ranged from 1,000-2,000.
A commission in turmoil
Andrew Kim, a gaming attorney who was covered prediction markets, posted on LinkedIn Monday that the election betting dismissal could be indicative of a commission that is now having to play chess with itself as it determines next steps.
“A CFTC that’s warming toward prediction markets wouldn’t benefit from a D.C. Circuit ruling (other than one affirming what Judge Cobb had already said),” Kim surmised. “And a ‘win’ for the CFTC would’ve been a headache, if not an obstacle, for an agency reassessing its views on prediction markets.”
Further complicating matters was a brief statement issued by the CFTC Monday raising questions about the conduct of its workforce:
“The CFTC is committed to holding employees to the highest standards, as expected by American taxpayers. Pursuant to the President’s executive orders on lawful governance and accountability, the CFTC has placed staff on administrative leave for potential violations of laws, government ethics requirements and professional rules of conduct. Investigations are currently ongoing into these matters and the CFTC will provide updates as appropriate.”