PREDICTION MARKETS
That doesn’t mean the field is settled, however. In the coming years there will be numerous avenues for policy change, as the CFTC likely retains rulemaking authority to prohibit contracts. As event contracts become an increasingly attractive substitute for state-licensed sports betting, it is also plausible that the CFTC could attempt to take action against gambling companies like DraftKings and FanDuel for offering unregistered derivatives. While the time for legal arguments will no-doubt come again, for now, as a few rule makers in Washington hold unusual sway over the future of an industry, normative arguments come to the fore. What should the future of DCM-based prediction markets be in the United States? What is gambling? The most common aspersion cast against prediction markets is that they are simply gambling by another name. This forced Kalshi CEO Tarek Mansour to take the other side, arguing in an interview with Axios that prediction markets cannot be gambling, because of everything else that would encompass. 7 “I just don’t really know what this has to do with gambling,” he said at an office in Washington. “If we are gambling, then I think you’re basically calling the entire financial market gambling.” But Mr. Mansour is being obtuse. He, you, and I all know what gambling is and know that when a user purchases an event contract on Kalshi, that is exactly what they are doing. Industry commentator Dustin Gouker argued as much in a piece earlier this year. 8 This is all a bit of a straw man. I think we all understand that every decision we make in life comes with some amount of risk, either large or minuscule. That does not inherently make everything we do “gambling.” Gambling generally implies betting on something that is out of our control. Most of the decisions we make that have risk, we also have some measure of control over them.
As an attorney representing prediction markets, I have been asked this question for years and now it’s time to put this conversation to rest. Yes, all of this is gambling, but that definition misses the point. Since the demise of PAPSA in Murphy v. National Collegiate Athletic Association , 584 U.S. 453 (2018), the definition of gambling has been left to the states, and generally, it is quite similar. New Jersey, for example, defines it thus: 9 Staking or risking something of value upon the outcome of a contest of chance or a future contingent event not under the actor’s control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome. You’ll notice first that this definition is quite broad, and second that it unarguably covers every single event contract, sports or no. Indeed, it covers much more than just event contracts. Virtually any derivative or insurance contracts are equally “gambling” by this definition. This is not a flaw of the definition, but it is not l egally meaningful because we recognize that these other types of contracts – grain futures, insurance, and, yes, event contracts – are socially valuable and so they are regulated under different regimes. Et Tu, Brute? Indeed, the same logic that suggests that prediction markets are “gambling” applies in the other direction as well. Why aren’t state gambling contracts just unregistered, federally regulated derivatives? Consider the CFTC’s definition of “binary option” 10 A binary option is a type of options contract in which the payout will depend entirely on the outcome of a yes/no proposition… When the binary option expires, the option holder will receive either a pre-determined amount of cash or nothing at all.
7 Nathan Bomey, Sports Event Contracts Are Not Gambling , Kalshi CEO Says, Axios (Apr. 17, 2025), https://www.axios.com/2025/04/17/kalshi- sports-betting-super-bowl. 8 Dustin Gouker, The Takeaway: Nothing Is Gambling , The Closing Line (Apr. 18, 2025), https://closingline.substack.com/p/the-takeaway-noth- ing-is-gambling. 9 N.J. Stat. Ann. § 2C:37-1(b) (West 2025), https://law.justia.com/codes/new-jersey/title-2c/section-2c-37-1/. 10 U.S. Commodity Futures Trading Commission & U.S. Securities and Exchange Commission, Investor Alert: Binary Options and Fraud (Apr. 28, 2022), https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/fraudadv_binaryoptions.html (last visited May 9, 2025).
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IMGL MAGAZINE | JUNE 2025
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