Closing the loophole: Prediction markets disguised as financial derivatives

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In recent years, prediction market platforms have rapidly expanded. Platforms like Kalshi have gained widespread attention by allowing users to wager on virtually anything.

Whether through billboards, digital advertisements, or even popup grocery stores, you likely have seen these once little-known companies grow ubiquitous throughout American society. But perhaps most pervasive of all offerings are sports event contracts. These so-called “event contracts” are linked to the outcomes of collegiate and professional sporting events, and their trading volume has exponentially increased in the past year. During Super Bowl LX, for instance, Kalshi’s trading volume exceeded $1 billion, a reported 2,700 percent increase from the previous year.

You may be asking yourself what differentiates these event contracts from traditional sportsbooks? Are they a financial instrument? A derivative? A swap? An investment? A sports bet in disguise? And those are the very questions being asked right now in the halls of Congress and in courts throughout the country. One notable and important distinction, however, is that these contracts fall under the regulatory authority of the Commodity Futures Trading Commission, not traditional state and tribal regulatory bodies.

The commission, a once-obscure agency historically tasked with overseeing markets like oil futures, agriculture and other financial products, has recently taken on the unprecedented responsibility of overseeing the rapidly expanding prediction market industry. By labeling their products as financial derivatives, these platforms conflate sports betting with investment and allow the platform’s activity to be dealt with at the federal level, instead of through the states or tribes who have historically been the ones regulating such markets. This distinction is not merely semantic; it carries serious consequences for consumers and the gaming industry.

Letting these sports contracts fly under a federal derivatives umbrella creates an enormous oversight gap and allows prediction markets to operate without the same guardrails that apply to licensed, regulated gaming operators. This includes safeguards like age verification, responsible gaming programs, advertising limitations and integrity monitoring.

At the same time, the Commodity Futures Trading Commission itself is being asked to oversee this rapidly expanding space with fewer resources. Staffing cuts, reportedly around 24 percent, have strained the agency’s capacity. To manage the workload, the commission has increasingly relied on a self-certification process, allowing platforms to introduce new contracts without prior approval. That means that the market, not the regulator, is deciding what is permissible to bet on.

This is concerning under any circumstance. In the context of a rapidly expanding, consumer-facing wagering market, however, it is particularly dangerous. Limited oversight means fewer protections, weaker enforcement, and little recourse when harm occurs.

Athletes, especially at the collegiate level, are particularly exposed to these risks. NCAA President Charlie Baker has raised alarms on these risks, warning that student athletes face growing exposure to manipulation and harassment. Kalshi, for example, has started to explore offering contracts tied to student-athlete personal decisions, such as transfer portal activity.

If enacted, it would allow prediction market companies to commodify 19-year-olds’ career choices, turning private deliberations into publicly traded instruments that invite outside pressure, targeted harassment, and potential manipulation from anyone with money on the line.

Perhaps more troubling is who these platforms are reaching. In many cases, users as young as 18 can participate, expanding access far beyond what is permitted in most regulated sports betting markets. Studies consistently show that bettors aged 18-20 years old are significantly more likely to chase their losses and bet beyond their means. This, combined with ongoing cognitive development, makes young individuals increasingly susceptible to gambling addiction and harm.

The industry’s claims of democratized finance also deserve scrutiny. According to reporting from The Wall Street Journal, just 0.1 percent of Polymarket accounts generated 67 percent of all profits, while on Kalshi nearly three users lose money for every one who profits. Far from creating broad financial opportunity, there is no level playing field at this craps table.

States have begun to recognize this and are rightfully asserting oversight of these platforms. More than 15 states, including Nevada, have taken active enforcement postures against these companies. Rather than respecting that authority, however, the Commodity Futures Trading Commission has launched a litigation campaign against those states, filing lawsuits against Minnesota, Wisconsin, Arizona, Connecticut, Illinois, Rhode Island, New Mexico, Kentucky, and New York in an effort to preempt their laws and assert exclusive federal jurisdiction. In short, a resource-depleted agency that cannot adequately police these markets is simultaneously working to ensure no one else can do so, either.

Representing Nevada’s 1st District, including Las Vegas and Henderson, means I understand the real-world impact of gaming on families and communities. In my district, the industry provides thousands of jobs, from dealers, hotel staff, and hospitality workers to marketing, tech, and finance roles. Every policy decision affects these workers’ livelihoods. Gaming also generates billions in tax revenue which funds schools, roads, public safety and essential services.

When a gaming product operates outside regulation, it is not just a consumer issue; it affects the entire ecosystem that relies on these revenues. In 2025 alone, the total statewide commercial casino gaming revenue reached $15.8 billion, with sports betting revenue amounting to $601.4 million. This resulted in $1.22 billion in casino tax revenue in Nevada.

It was not by accident that Nevada built the most respected gaming regulatory framework in the world. It was built over time through hard-won consumer protections, integrity monitoring, licensing requirements, and robust enforcement mechanisms. That is precisely why I introduced the Fair Markets and Sports Integrity Act to ensure that prediction markets cannot simply rebrand sports betting as a “financial derivative” and evade the consumer safeguards that Nevada and other states and tribes have carefully put in place.

Ultimately, this is not just a debate about labels; it is a question of accountability. If it looks like sports betting, functions like sports betting, and carries the same risks as sports betting, then it should be regulated like sports betting. Congress and regulators must act to close this loophole. The longer we allow these markets to proliferate, the longer we normalize a system that obscures risk, fails to protect its consumers, siphons public tax dollars, and threatens the integrity of the games the public enjoys.

Dina Titus represents Nevada’s 1st District in Congress.

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Charlie Baker

Kalshi

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polymarket

Super Bowl LX

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