Caroline Pham, Acting Chairperson Commodity Futures Trading Commission Page 7 of 13
B. Sports Contracts “Involve . . . Gaming” Under Federal Caselaw. In KalshiEX LLC , the United States District Court for the District of Columbia adopted KalshiEX LLC’s (Kalshi) definition of “gaming,” as the term is used in the CEA, to mean “playing games” and “playing games for stakes.” KalshiEX LLC v. CFTC , No. 23-3257, 2024 WL 4164694, *8 (D.D.C. Sept. 12, 2024). Under the definition advocated by Kalshi and adopted by the District Court, Sports Contracts clearly involve gaming. As the District Court explained, Congress specifically intended to prohibit sports betting. Id. at *12. According to the CEA’s legislative history, Senator Lincoln (the drafter of the 2010 amendments to the CEA) remarked during “colloquy on the Senate floor . . . that the provision ultimately enacted as Section 5(c)(5)(C) of the CEA was intended to ‘prevent gambling through futures markets’ and restrict ‘event contract[s] around sporting events such as the Super Bowl.’” Id. In that colloquy, Senator Lincoln stated that the intent of the 2010 Dodd-Frank amendments to the CEA was “to protect the public interest from gaming contracts.” 156 Cong. Rec. S5906 (2010). Senator Feinstein asked if the intent of the legislation was to empower the CFTC “to determine that a contract is a gaming contract if the predominant use of the contract is speculative as opposed to a hedging or economic use.” Id. Senator Lincoln responded: That is our intent . . . to prevent derivatives contracts that are contrary to the public interest because they exist predominantly to enable gambling through supposed “event contracts.” It would be quite easy to construct an “event contract” around sporting events such as the Super Bowl, the Kentucky Derby, and Masters Golf Tournament. These types of contracts would not serve any real commercial purpose. Rather, they would be used solely for gambling. Id. at S5906-7 (emphasis added). The District Court in KalshiEX distinguished the Congressional control contracts at issue in that case because “elections bear little relation to ‘sporting events.’” KalshiEX LLC , 2024 WL 4164694, at *9. The District Court concluded that “event contracts related to any of the sporting events the senator mentioned on the floor could implicate the gaming category,” and “[a]ll these [sports] events can easily be construed as gaming; they can even be construed as games played for stakes (cash prizes and trophies, for example).” Id. at *12. During oral arguments in the D.C. Circuit, Kalshi further clarified its definition of “gaming,” confirming to the judges that sports betting would be covered because “sports are games.” Thus, Sports Contracts clearly involve gaming, as evidenced
necessary under the plain meaning of the terms of the CEA’s and its implementing regulations.
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