CFTC Signals Hedging Potential in Sports Event Contracts
Former CFTC Commissioner Says Some Sports Event Contracts Could Be Legitimate — Here’s Why That Matters If you follow the clash between prediction markets and traditional sportsbooks, a recent (and quietly consequential) shift in regulatory thinking has been brewing. Dan M. Berkovitz, a former commissioner of the Commodity Futures Trading Commission (CFTC), has argued that not all sports event contracts are merely gambling — some could legitimately serve a hedging or commercial‑risk purpose and therefore fall within the CFTC’s authority under the Commodity Exchange Act (CEA). That’s a big deal because it challenges the long‑standing, blunt treatment of “gaming” under CFTC Rule 40.11 and helps explain why the agency recently backpedaled on a broad 2024 proposal. Below I’ll walk you through what event contracts are, why “gaming” has been a regulatory blind spot, what Berkovitz actually proposed, how the CFTC has shifted, and what the Kalshi litigation and state preemption fight mean for the future. I’ll also flag practical implications for bettors, sportsbooks, exchanges and regulators — and answer the questions players tend to ask. What are event contracts, and why did Rule 40.11 treat sports as per se “gaming”? Event contracts are derivatives whose payoff depends on the occurrence or outcome of a specified event — think the winner of the Super Bowl, whether a particular candidate wins an election, or an economic indicator hitting a threshold. They can be simple binary-style contracts or more complex payoff structures tied to a measurable outcome. The Futures Industry Association laid out the basics in a helpful industry primer on event contracts. (FIA webinar PDF) The CEA gives the CFTC authority to prohibit event contracts involving certain sensitive subjects — including war, terrorism, assassination, unlawful activity, and “gaming” — where the Commission finds such contracts are contrary to the public interest. That power appears in the statute’s “concerning event contract” section. But here’s the rub: Rule 40.11, which the CFTC used to implement this authority, treated contracts involving “gaming” as per se prohibited. In practice that meant sports event contracts were presumed off‑limits without a tailored public‑interest analysis. Adding to the confusion, the statutes and regulations don’t actually define “gaming.” The Commission itself has acknowledged the term “is not susceptible to easy definition,” which left exchanges and market participants guessing where the line would fall. The upshot: for years, sports outcomes were treated as sitting squarely in the banned pile. (FIA webinar) Dan Berkovitz’s view: sports contracts can be legitimate hedges, not just wagers Dan Berkovitz took a different tack. Rather than accept a categorical prohibition, he urged the CFTC to permit listing of sports event contracts where an exchange can show the contracts will be used to hedge commercial risks arising from lawful sports‑related activity. In his words, it would not be “contrary to the public interest” to allow such contracts when they serve a bona fide hedging function. (Berkovitz, FIA webinar) Why does that small rephrasing matter? Because it reframes sports event contracts from being only consumer entertainment (i.e., gambling) to possibly being an accepted risk‑management tool in legitimate commercial markets. Examples of lawful commercial exposures might include: Sportsbooks and operators hedging payout liabilities tied to specific outcomes; Sponsors or advertisers with bonus payments or revenue shares indexed to on‑field results; Broadcasters, event promoters, or other commercial counterparties who have contractually contingent obligations tied to event results. Under Berkovitz’s proposed functional test, a contract that demonstrably hedges such a lawful exposure could be listed on an exchange and regulated under the CEA, rather than being treated as an impermissible “bet.” That’s a more granular, economically grounded approach than the one‑size‑fits‑all “gaming” ban. Why the CFTC’s 2024 proposal and 2026 reversal matter The stakes got higher in 2024 when the CFTC issued a Notice of Proposed Rulemaking (NPRM) that attempted to codify a broad prohibition by treating political, sports, and awards‑show contracts as “gaming.” Critics said this was an exercise in “merit regulation” — deciding what people should be allowed to trade based on the topic rather than on concrete market harms. The NPRM drew broad pushback from industry and commentators. (coverage of the NPRM) On February 4, 2026, Chairman Michael S. Selig announced the withdrawal of the 2024 NPRM (and a 2025 staff letter that had created further ambiguity), calling the prior attempt a “frolic into merit regulation.” The CFTC said it would pursue a new rulemaking “grounded in a rational and coherent interpretation of the CEA” that supports responsible innovation. The formal withdrawal appears in the agency’s press release and the Federal Register notice. (CFTC press release) (Federal Register notice) That pivot matters for two reasons. First, it signals institutional willingness to move away from blanket ex ante bans toward contract‑by‑contract or ex post public‑interest analysis — precisely the sort of framework Berkovitz advocated. Second, it keeps open the regulatory path for exchanges to list certain event contracts if they can show a legitimate hedging or commercial role. Kalshi, courts, and the federal vs. state tug of war One of the real‑world test cases for this doctrinal shift is Kalshi, the CFTC‑regulated Designated Contract Market (DCM) that won early approval to list event contracts in 2020. The company’s foray into political and sports markets sparked litigation and state reaction. After a federal district court found political contracts did not constitute “gaming,” the CFTC dropped its appeal in 2025. Kalshi began offering sports event contracts on January 24, 2025, and the CFTC did not bring enforcement actions over those products. (Stinson LLP legal analysis) But state regulators in Nevada, New Jersey and Maryland pushed back with cease‑and‑desist letters, arguing Kalshi’s sports offerings violated local gambling laws. Federal courts in Nevada and New Jersey sided with Kalshi — holding that the CEA preempted state gambling regulation for a CFTC‑regulated DCM — while a Maryland court reached a different result and denied Kalshi a preliminary injunction. These split rulings underscore that the federal‑state boundary is not settled in practice and depends on how courts interpret preemption in the context of CFTC