CFTC proposal raises tribal sovereignty issues in prediction market dispute

A federal company has proposed a brand new rule that would loosen its regulation of prediction markets — and undercut tribal and state governments’ challenges to these markets’ operations.

The proposed rule, revealed June 12 within the Federal Register, would revise how the Commodity Futures Trading Commission (CFTC) evaluates occasion contracts. These contracts, traded on prediction markets, pay contract holders primarily based on the result of a given occasion, akin to election, a sports activities recreation, or the climate on a selected day.

The CFTC’s proposed revisions would chop the company’s personal authority to disallow specific contracts. The Commodity Exchange Act offers the CFTC particular authority to dam contracts involving gaming, battle, terrorism, or illegal exercise, however the proposal would chop how that authority applies.

Under the brand new guidelines, the fee — at present led by Chairman Michael Selig — would serve primarily as a monitor stepping in solely to curb “contracts against the public interest,” slightly than guiding or regulating the market extra broadly.

At the identical time, the rule would reaffirm the CFTC’s unique jurisdiction over swaps and futures, together with occasion contracts, underneath the Commodity Exchange Act. That jurisdiction, the company argues, preempts state playing legal guidelines and different types of nonfederal regulation that may in any other case apply to prediction markets.

The rule’s preemption language has drawn specific consideration from tribal and state governments. The proposal states that the CEA “preempts the application of state law” and that Congress granted the CFTC “exclusive jurisdiction” to control futures, choices, and swaps on federally regulated exchanges. The company cites legislative historical past describing federal preemption as “complete.”

The proposal features a part on tribal session. Legal consultants and policymakers say it doesn’t adequately tackle tribal sovereignty or the potential results on tribal gaming operations.

Danielle Finn, program director of the Indian Nations Gaming and Governance Program on the University of Nevada, Las Vegas, mentioned the coverage doesn’t have interaction critically with tribal sovereignty.

“The CFTC spends considerable effort in this rule arguing that federal jurisdiction preempts state gambling laws. But tribal sovereignty isn’t the same as state law,” Finn mentioned. “Tribes are separate sovereigns, and this rule never seriously grapples with that distinction. That’s a significant omission.”

Finn mentioned the rule’s session part “reads more like a checkbox than genuine engagement,” regardless of the proposal’s potential influence on tribal economies.

“For many tribal nations, gaming revenue funds schools, hospitals, and housing,” she mentioned. “If federal prediction market regulation begins encroaching on what counts as gaming and who gets to regulate it, that’s not an abstract legal question. It has real consequences for tribal economies and self-governance.”

The proposal arrives as prediction markets have grown quickly in dimension and visibility. According to the CFTC’s rule proposal, buying and selling quantity on registered platforms exceeded $25 billion in 2025. The company writes that the markets present helpful info for worth discovery and forecasting, and that clearer guidelines are wanted to deal with the growth of contracts tied to politics, sports activities, and cultural occasions.

The company additionally goals to make clear what it means by “gaming” contracts. Under the proposal, the definition would apply solely to contracts that resolve primarily based on the result of a recreation. Contracts tied to attendance figures, tv scores, or different metrics adjoining to a sporting occasion would typically fall outdoors the company’s gaming authority to dam them.

Rob Schwarz, former CFTC normal counsel and now a associate at Morgan Lewis & Bockius LLP, mentioned the definition alerts a narrower method to sports activities markets than many anticipated.

“The proposed rule does not limit sports markets very much. It’s really just around the edges that the CFTC is proposing to contain it,” Schwarz mentioned. “It indicates that it will look more favorably upon prediction markets on aggregate results, full seasons, and game scores, and less so on individual occurrences under one person’s control.”

Schwarz mentioned the company can be proposing to constrain its personal authority to evaluate and disapprove occasion contracts.

“It’s clearly going to allow this kind of activity to go on, which we already suspected because they haven’t been doing anything to constrain it. It also emphasizes that state gaming authorities can’t regulate it either,” Schwarz instructed Tribal Business News. “I think it’s almost a libertarian attitude. The agency’s policy is that (event contracts) will rise or fall depending on whether the market wants (them).”

The proposal follows months of criticism from tribal gaming organizations and a few members of Congress. During an April House Agriculture Committee listening to, lawmakers and tribal leaders argued that sports-related prediction markets resemble sports activities wagering and warned that treating them as federally regulated monetary merchandise might undermine tribal gaming compacts and tribal sovereignty.

U.S. Sen. Catherine Cortez Masto (D-Nev.) mentioned the proposal undermines each state and tribal authority over sports activities wagering and casino-style gaming.

“It’s been very clear to me that the current chair of the CFTC under Trump’s administration is undermining and, more importantly, usurping not just tribal authority but states’ rights in this space of prediction markets,” Cortez Masto mentioned. “I think the states have a role and tribes have a role to regulate sports wagering and casino-style gaming, and that should never be taken away or federally preempted.”

Cortez Masto, a member of the Senate Committee on Indian Affairs, mentioned prediction markets operate as sports activities wagering and lack the patron protections, habit safeguards, and licensing necessities that states and tribes have developed over a long time.

“Prediction markets are sports wagering. You just have to look at the activity that happens. Over 90 percent of what happens on these markets is sports wagering,” she mentioned. “To say that they’re anything different is really a lie.”

Schwarz mentioned the matter is probably going headed for a messy battle earlier than the U.S. Supreme Court, with penalties both for the markets themselves or for governments looking for to control them.

“I have no idea what the Supreme Court is going to say about this, but either way I think there’s going to be some aftermath,” Schwarz mentioned. “People like the product.”

The CFTC didn’t reply to a number of requests for remark from Tribal Business News by press time. A request for remark from the Indian Gaming Association additionally had not been answered by press time.

The CFTC is accepting public feedback on the proposal by July 27.