Understanding the CFTC’s Probe into Crypto.com and Kalshi’s Sports Contracts
The recent investigation into the event contracts offered by Crypto.com and Kalshi raises a pivotal question: Are these sports-related contracts considered “gaming” under the definitions outlined in the Commodities Exchange Act? This query is at the forefront of discussions among legal experts, including crypto attorney Aaron Brogan.
According to a report by Bloomberg, the Commodity Futures Trading Commission (CFTC) is scrutinizing the contracts associated with the Super Bowl events on both platforms. Brogan emphasized that if sports do not fall under the definition of gaming, then the CFTC may lack the authority to prevent Crypto.com and Kalshi from self-certifying these contracts, given the current legal framework.
However, the situation is more intricate than it may appear at first glance. Brogan described this legal dilemma as “surprisingly thorny,” referencing a recent ruling involving Kalshi. This ruling, which took place last fall, permitted Kalshi to advance with its election betting contracts by establishing that these contracts do not fit within the CFTC’s restricted categories.
In the earlier ruling, the judge defined “gaming” as “playing games” or “playing games for stakes,” pointing to historical discussions in Congress during the formulation of the Commodities Exchange Act. Specifically, a lawmaker indicated that the prohibition against gaming was intended to encompass sports betting, which raises concerns regarding the legitimacy of the contracts in question.
Despite these seemingly negative implications for the contracts, Brogan expressed a degree of skepticism about the finality of the judge’s interpretation. He noted that the finding was dicta, meaning it is non-binding, and that the legislative history only holds weight when the law in question is ambiguous.
Brogan also referred to the definition of gaming according to the Merriam-Webster dictionary, which focuses on “the practice or activity of playing games for stakes.” He argues that this definition leans more toward gambling rather than sports, suggesting that prediction markets could present compelling arguments if the matter were to be litigated. “Some judges might be open to this textualist perspective,” he added.
Another critical aspect of this situation is the evolving nature of the CFTC itself. Many observers believe that the recent appointment of Republican Caroline Pham as the Commission’s Chair may usher in a more lenient regulatory approach. Brogan highlighted that the previous Democratic leadership had been quite critical of retail-oriented event contracts, actively opposing platforms like PredictIt and Kalshi in their efforts to offer election-related contracts in 2023 and 2024.
However, the degree of leniency from the current CFTC leadership remains uncertain. Brogan concluded, “If they’re probing into these post-inauguration Kalshi contracts, it suggests they may still adopt a hawkish stance on at least some types of event contracts.”
