Former top regulator Gary Gensler is weighing in on the new legal battle heating up over the regulation of sports-related prediction markets in the United States, and he is clearly opposed to federal oversight.
Gensler Enters Legal Fight Over Sports Betting Regulation
The former head of both the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC), Gensler has filed a legal brief in support of the state of Ohio’s legal battle with prediction market platform Kalshi, reported Bloomberg. A federal appeals court is weighing whether sports-based contracts should fall under federal derivatives law or remain governed by state gambling rules.
Kalshi has argued that certain event-based contracts based on sports outcomes are financial instruments known as swaps. The company said that under this interpretation, oversight would only be the responsibility of the CFTC, effectively overriding state-level gaming laws across the country. This has the support of the federal government, and the regulatory conflict is increasing.
However, Gensler is adamantly opposed to that argument. Informed by his experience crafting the 2010 Dodd-Frank Act after the global financial crisis, he says the law was never meant to apply to sports wagering. Lawmakers had only one agenda, which was to stabilize complicated financial markets and deal with systemic risks, not to develop a national betting framework, he said.
Gensler wrote in his court filing that the notion that federal agencies would have jurisdiction over sports betting was never raised in extensive discussions in Congress at the time. He said that such a big change would not have been hidden in financial legislation, particularly given the economic importance of gaming for some states.
US Faces Growing Divide Over Sports Betting Authority
The dispute underscores a wider clash between federal regulators and state governments. Kalshi and the CFTC are pushing for centralized oversight, while a coalition of states, tribal gaming organizations, and industry groups say the regulation of gambling has always been and should continue to be a state responsibility.
Backers of Kalshi’s model say prediction markets can have real-world economic uses beyond entertainment, such as enabling businesses to hedge risks associated with major sporting events. Gensler has pushed back on this logic, arguing that ordinary sports bets are missing those key characteristics of financial hedging instruments.
The case also comes with huge financial stakes. If Kalshi has its way, the regulatory authority over a multibillion-dollar industry could be dramatically shifted from state agencies to a single federal agency.
Legal observers say the conflicting rulings in different courts make it more likely the issue could eventually end up in the US Supreme Court. The ruling would provide a clear demarcation between financial regulation and gambling law.
For now, Gensler’s intervention lends credence to the argument that sports betting, even with its evolving formats, is outside the purview of federal derivatives regulation and sets the stage for a landmark ruling on the future of prediction markets in America.