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 oversight. (Stinson LLP)

The Kalshi litigation is the practical battleground for Berkovitz’s theoretical framing. If courts and regulators accept that certain sports event contracts can function as hedges for lawfully incurred commercial risk, those contracts become a natural fit for CFTC regulation. If, instead, courts validate a broad state view of these products as unregulated gambling, the market will be bifurcated and uncertain.

Practical implications: who benefits and who should be cautious?

Here’s how Berkovitz’s approach — and the CFTC’s subsequent course correction — translates into real outcomes for different players.

Exchanges and market operators

• Opportunity: A path to list niche event contracts that serve real commercial hedging needs, subject to CFTC oversight (market surveillance, position limits, clearing, etc.).
• Responsibility: Exchanges will need to document the commercial purpose and user base for these contracts to withstand public‑interest scrutiny.

Sportsbooks and commercial counterparties

• Potential benefit: Sportsbooks, sponsors and other commercial actors could use exchange‑traded contracts to hedge exposure — reducing balance‑sheet volatility tied to a big game or tournament.
• Caveat: Operationally integrating derivatives hedges with retail wagering liabilities requires careful legal and accounting treatment, and state gaming rules could still complicate matters in some jurisdictions.

Retail bettors and the public

• Clarity vs. confusion: A regulated CFTC venue could offer stronger consumer protections and market integrity features than unregulated markets. But the differences between an exchange contract and a bet will not always be obvious to casual players.
• Risk: Treating event contracts like derivatives doesn’t remove gambling risk. Products listed for hedging purposes can still be traded by speculators, and that invites typical gambling‑related harms if not properly guarded.

Regulators and policymakers

• Challenge: The CFTC has to craft a framework that permits bona fide hedges while preventing elision of state gambling law and avoiding “merit regulation.”
• Work to do: Courts’ split rulings on Kalshi show the legal patchwork that Congress or the courts may eventually have to resolve.

Risks, caveats and unanswered questions

Before you get excited at the prospect of an orderly derivatives market for sports outcomes, a few reality checks.

• Definition trouble: “Gaming” remains imprecise in the statutory text and regulatory practice. How the CFTC or a court defines or interprets the term matters a lot for whether a contract survives review. (FIA webinar)
• Showing hedging intent: Exchanges will need to show concrete evidence that a product serves a commercial hedging need — not just that speculators might trade it. That raises evidentiary questions about who is trading and why.
• State preemption is unsettled: Litigation has produced conflicting outcomes in Nevada/New Jersey vs. Maryland, so preemption is not a guaranteed shield against state gambling rules. (Stinson LLP)
• Policy tradeoffs: Critics worry that allowing event contracts normalizes betting on sensitive events, while supporters argue regulation brings transparency and risk management. Reasonable people can disagree on where the balance should be.

Where this could go next: likely scenarios

Based on the recent CFTC withdrawal of its 2024 NPRM and Berkovitz’s framing, a few plausible paths forward emerge:

• Contract‑by‑contract approval: Exchanges file specific contracts and the CFTC applies a public‑interest test, allowing hedging‑oriented products while continuing to exclude clearly promotional gambling products.
• Guardrails and standards: The CFTC could adopt standards that define acceptable commercial exposures, customer protections, position reporting, and disclosure requirements to distinguish hedges from wagers.
• Legislative clarity: If the courts remain split, Congress could step in to clarify the preemption relationship or define permissible event contracts more precisely. That would be the most definitive but also the slowest route.

Each path has pros and cons. The key takeaway is that Berkovitz’s hedging test has traction because it aligns regulation with economic function rather than topic alone — and the CFTC’s 2026 policy shift opened the door to that kind of reasoning. (Columbia Blue Sky analysis)

Frequently Asked Questions

• Q: What exactly did Dan Berkovitz propose?

  A: He argued that sports event contracts should not be categorically banned as “gaming.” Instead, the CFTC should permit such contracts when an exchange can demonstrate they will be used to hedge lawful commercial exposures tied to sports betting or other legitimate business activities. (FIA webinar)

• Q: Does this mean sports betting will be regulated by the CFTC rather than state gaming commissions?

  Not automatically. The CFTC can regulate exchange‑traded event contracts under the CEA, particularly when used for hedging. But states retain police powers over retail gambling, and courts have split on whether the CEA preempts state gambling laws in these circumstances. The Kalshi cases illustrate this tension. (Stinson LLP)

• Q: What did the CFTC do about its 2024 event contracts NPRM?

  The Commission withdrew the NPRM on February 4, 2026, with Chairman Michael S. Selig calling the prior approach a “frolic into merit regulation” and promising a new rulemaking grounded in the CEA. The agency published a press release and a Federal Register notice on the withdrawal. (CFTC press release) (Federal Register)

• Q: Is Kalshi allowed to list sports contracts?

  Kalshi began offering sports event contracts on January 24, 2025, and the CFTC didn’t initiate enforcement against those products. Federal courts in Nevada and New Jersey have sided with Kalshi on preemption, while a Maryland court denied preliminary relief for Kalshi — showing the issue remains contested. (Stinson LLP)

• Q: Could exchanges list every sports bet as a derivative to avoid state rules?

  No. The point of Berkovitz’s approach and the CFTC’s likely path is to distinguish bona fide hedging contracts from speculative wagering. Exchanges will need to show commercial purpose, customer mix, and risk‑management intent. Regulators and courts will scrutinize attempts to rebrand retail gambling as derivatives. (Columbia Blue Sky)

• Q: If I’m a retail trader, does this change anything for me?

  Maybe, but not immediately. You could see more products listed on regulated exchanges, which can mean better transparency and market‑integrity practices. But exchange contracts aimed at hedging may have different mechanics, margining and liquidity characteristics than simple sportsbook wagers. Also, the legal landscape varies by state.

• Q: What are the main risks regulators worry about?

  Regulators worry about normalizing betting on sensitive events, undermining state gambling regimes, and potential market manipulation or fraud. That explains why the CFTC wants to avoid appearing to evaluate which topics are appropriate for trading on moral grounds (“merit regulation”) and instead prefers principled, evidence‑based rules. (coverage)

Conclusion: a functional approach is catching on — but the path remains bumpy

Dan Berkovitz’s argument that sports event contracts can sometimes be legitimate hedging tools is more than an academic sidebar — it describes the direction in which policy and litigation have been moving. The CFTC’s withdrawal of its 2024 NPRM and the mixed court rulings in the Kalshi litigation show both opportunity and friction: a shift toward function‑based regulation, but with unresolved preemption and definitional questions that could take years to settle.

For market participants and bettors, the near‑term takeaway is pragmatic: exchanges that want to list sports‑related contracts should document commercial use cases and robustly show how such products fit within risk‑management and market‑integrity frameworks. For regulators and policymakers, the tradeoff is equally clear: allow innovation and risk management under the CEA while preserving state authority over retail gambling and protecting consumers.

This debate is one to watch if you care about the future of prediction markets, sports wagering and where financial innovation meets regulatory boundaries. If the CFTC and the courts continue toward the functional, hedging‑based test that Berkovitz proposed, we could end up with a clearer — and more rational — line between regulated derivatives and state‑regulated betting. That would be good for transparency, risk management and responsible product design. But don’t expect an overnight fix; the legal and policy work remains significant.