CFTC Probes Super Bowl Event Contracts on Crypto.com and Kalshi

The recent probe of Crypto.com and Kalshi's sports contracts all comes down to a single question — are event contracts premised on sports “gaming” within the meaning of the Commodities Exchange Act

The recent Commodity Futures Trading Commission (CFTC) probe into the Super Bowl events contracts offered by Crypto.com and Kalshi has sparked discussions about the legal definition of "sports gaming" within the Commodities Exchange Act, according to crypto lawyer Aaron Brogan.

The probe stems from a broader CFTC investigation into the legality of event contracts, which was initiated following the massive success of PredictIt's political prediction markets, Brogan said in an interview with CoinDesk.

"The recent probe of Crypto.com and Kalshi's sports contracts all comes down to a single question — are event contracts premised on sports 'gaming' within the meaning of the Commodities Exchange Act?" Brogan said.

The CFTC is specifically interested in determining whether Crypto.com and Kalshi are self-certifying these contracts without the Commission's approval, which would be illegal if sports events are deemed to constitute "gaming" under the Commodities Exchange Act, Brogan explained.

However, the legal definition of "sports gaming" is surprisingly complex and has been the subject of much debate, particularly in the context of Kalshi's election betting contracts, Brogan said.

In a ruling last fall, a judge defined "gaming" as "playing games" or "playing games for stakes," and cited discussions during the drafting of the Commodities Exchange Act, where a lawmaker stated that the rule against gaming was intended to cover sports betting, Brogan explained.

"All of that sounds bad for these contracts, but I am not wholly convinced," Brogan said.

The judge's finding on the gaming definition is dicta, or non-binding, and the legislative history is only relevant if the law is ambiguous, Brogan explained.

Additionally, Merriam-Webster defines gaming as "the practice or activity of playing games for stakes," which suggests that these prediction markets would have strong arguments if they had to go to court, Brogan said.

"At least in Merriam-Webster, this clearly means gambling, not sports, so I think these prediction markets would have colorable arguments if they had to go to the mats," Brogan said.

Some judges might be receptive to this kind of textualist argument, especially given the changing composition of the CFTC, Brogan explained.

Many believe that the appointment of Republican Caroline Pham as the Commission's Chair will lead to a more laissez-faire regulatory approach, Brogan said.

"The Democrats had been highly skeptical of retail-oriented event contracts and fought hard against first PredictIt and then Kalshi in 2023 and 2024 to attempt to prevent them from offering election contracts," Brogan said.

But, how laissez-faire is still something up for debate, especially in the post-inauguration period, Brogan explained.

"If they're probing into these post-inauguration Kalshi contracts, maybe they will still be hawkish on at least some event contracts," Brogan concluded.