Event Contracts Under Fire: CFTC Questions If New Trading Products Are Just “Backdoor Gambling”

Event contracts, which allow traders to bet on specific outcomes in areas such as sports, politics, and entertainment, have surged in popularity but now face intense regulatory scrutiny in the U.S. The Commodity Futures Trading Commission (CFTC) is leading the charge, questioning whether these contracts constitute legitimate financial instruments or are simply a “backdoor to gambling.”

Key Takeaways:

• The CFTC has initiated a 90-day review of Crypto.com’s sports contracts, questioning their legitimacy
• Robinhood was forced to suspend Super Bowl event contracts just one day after launch
• A legal battle continues over political event contracts, with Kalshi winning a temporary victory in court
• Industry platforms argue these are legitimate derivatives while critics call them gambling in disguise
• Regulatory decisions in 2025 will likely determine if event contracts become mainstream or remain restricted

CFTC Intensifies Scrutiny of Sports and Election Betting

The Commodity Futures Trading Commission kicked off 2025 with aggressive regulatory action, initiating a 90-day review of Crypto.com’s sports contracts in January. The review focuses on whether these products qualify as “gaming” under the Commodity Exchange Act (CEA) – a classification that would make them illegal on regulated exchanges.

Despite the CFTC’s request to suspend trading during the review period, Crypto.com has refused, maintaining that its contracts are legally compliant derivatives. The exchange argues that these products serve legitimate market purposes by providing price discovery and hedging opportunities.

Kalshi, another platform offering similar contracts, is also under CFTC scrutiny, particularly for its Super Bowl-related offerings. The company has been battling regulators since 2023 over the legality of its event contracts.

“These products raise fundamental questions about the boundaries between regulated derivatives and illegal gaming,” said CFTC Commissioner Christy Goldsmith Romero in a February statement. “We need to ensure these platforms aren’t simply creating a federally-sanctioned gambling market.”

Robinhood’s Super Bowl Contracts: Here Today, Gone Tomorrow

In what industry observers describe as a cautionary tale, Robinhood launched Super Bowl event contracts in February 2025 but was forced to suspend them within just 24 hours after CFTC intervention.

The popular trading platform had promoted the contracts as an exciting new way for customers to engage with the big game, allowing users to bet on outcomes such as which team would score first or whether the coin toss would be heads or tails.

“We’re disappointed to announce the temporary suspension of our Super Bowl contracts while we work with regulators,” Robinhood stated in a customer notification. “We believe these products provide valuable market-based pricing of real-world probabilities and meet all regulatory requirements.”

The CFTC expressed concerns that Robinhood’s contracts blurred the line between financial markets and gambling, potentially violating the CEA’s prohibition on “gaming” contracts. This rapid intervention signals the regulator’s determination to assert control over this emerging market.

The Political Betting Battleground

Perhaps the most contentious area involves political event contracts, which allow betting on election outcomes. Kalshi has been at the forefront of this battle, fighting the CFTC’s attempt to ban its political contracts.

In October 2024, Kalshi secured a significant legal victory when the D.C. Circuit Court of Appeals allowed the company to resume trading these contracts, rejecting the CFTC’s argument that they involved “gaming” or unlawful activity.

“The court recognized that our political event contracts serve valuable economic purposes by providing transparent, market-based pricing of election probabilities,” said Tarek Mansour, CEO of Kalshi. “These products help businesses hedge political risk and provide more accurate forecasts than traditional polling.”

However, the CFTC has appealed this decision, with the case still pending as of March 2025. The outcome could set a crucial precedent for the future of event contracts in the United States.

Industry Defense: More Than Just Betting

Platforms offering event contracts have mounted a vigorous defense of their products, arguing that they represent legitimate financial instruments rather than disguised gambling.

“Our contracts are properly regulated derivatives that serve genuine economic purposes,” said Kris Marszalek, CEO of Crypto.com, in a statement responding to the CFTC review. “They provide price discovery, hedging opportunities, and access to markets that have traditionally been dominated by insiders and professional forecasters.”

Supporters point to several factors distinguishing these products from traditional gambling:

1. Market-based pricing: Unlike fixed-odds betting, prices fluctuate based on market activity, providing valuable real-time probability assessments.
2. Regulatory oversight: These contracts trade on platforms registered with and regulated by the CFTC, subject to federal market surveillance and customer protection rules.
3. Hedging applications: Businesses can use these markets to hedge against event-related risks, such as companies sponsoring sporting events or those affected by election outcomes.
4. Democratization of finance: These products give retail investors access to markets previously dominated by sophisticated institutional players.

“We’re seeing growing demand from retail traders who want exposure to real-world events through regulated, transparent markets,” explained Thomas Peterffy, Chairman of Interactive Brokers, which has expressed interest in offering event contracts. “This represents the next wave in the democratization of financial markets.”

Critics Warn of “Backdoor Gambling”

Despite industry arguments, critics maintain that event contracts fundamentally constitute gambling and pose significant risks to market integrity and consumer protection.

Former CFTC Chair Rostin Behnam has been among the most vocal opponents, warning that these contracts blur crucial lines between financial trading and gambling. “When everyday Americans can bet on whether a football team will win or lose through a federally regulated exchange, we risk undermining public trust in both our markets and our regulatory framework,” Behnam stated before leaving office.

Better Markets, a financial reform advocacy group, has labeled these contracts a “backdoor to gambling” and called for immediate suspension of all sports event contracts until the CFTC completes its evaluation.

“These products lack legitimate economic purpose and strain the CFTC’s resources at a time when the agency should be focused on systemic risks in the derivatives markets,” said Dennis Kelleher, President of Better Markets. “They represent a concerning attempt to federalize sports betting under the guise of derivatives trading.”

Critics also highlight several specific concerns:

1. Market manipulation risks: Participants directly involved in events (athletes, coaches, officials) could potentially trade with inside information or even influence outcomes.
2. Regulatory arbitrage: Platforms may be exploiting gaps between federal derivatives regulation and state gambling laws to offer what amounts to sports betting without proper gambling licenses.
3. Consumer protection issues: Retail traders may not fully understand the risks of these products or how they differ from traditional investments.
4. Mission creep: The CFTC’s resources could be diverted from monitoring systemically important markets to regulating what are effectively entertainment products.

The Legal Battleground

The regulatory debate centers on the CFTC’s authority under Section 5c(c)(5)(C) of the Commodity Exchange Act and CFTC Regulation 40.11, which allow the agency to prohibit contracts involving “gaming” or other activities deemed contrary to the public interest.

The CFTC has historically treated sports betting as off-limits for regulated exchanges. However, platforms like Kalshi and Crypto.com are testing these boundaries by self-certifying their contracts as compliant with federal regulations.

The D.C. Circuit’s October 2024 decision in KalshiEx v. CFTC marked a significant victory for event contract platforms. The court ruled that political event contracts did not “involve” gaming or unlawful activity, challenging the CFTC’s expansive interpretation of its authority.

Judge Patricia Millett wrote in the majority opinion: “Nothing in the text of the CEA suggests that Congress intended to prohibit all contracts that might resemble gambling to some observers. The Commission’s interpretation would give it virtually unlimited authority to ban contracts based on subjective determinations of what constitutes ‘gaming.'”

This ruling has emboldened other platforms to enter the market, despite ongoing regulatory uncertainty. Legal experts suggest the ultimate resolution may require congressional intervention.

“The CFTC has attempted to establish clearer criteria for event contracts through rulemaking but has been unable to finalize a rule,” explained Katherine Cooper, a financial regulatory attorney. “Congress may need to step in and set explicit legal boundaries if the courts continue to rule against the CFTC.”

Market Outlook: Growth Amid Uncertainty

Despite regulatory headwinds, the global event contracts market is projected to grow significantly, driven by increasing consumer demand and technological advancements.

“We’re seeing tremendous interest from retail traders who want to express their views on real-world events through regulated markets,” said Adam White, President of Bakkt, a digital asset marketplace exploring event contracts. “These products bridge the gap between traditional financial markets and the events people care about in their daily lives.”

Industry analysts predict that a potential wave of deregulation under the Trump administration could further boost this sector, though regulatory uncertainty remains the biggest obstacle to widespread adoption.

“The market potential is enormous, but platforms need regulatory clarity before making significant investments,” explained David Schwartz, fintech analyst at Morgan Stanley. “If the CFTC provides a clear framework for compliant event contracts, we could see rapid market expansion, particularly in sports and entertainment verticals.”

Conclusion: The Future of Event Contracts Hangs in Balance

Event contracts stand at a crucial regulatory crossroads in 2025.

While platforms like Kalshi and Crypto.com push for broader acceptance of these products as legitimate financial instruments, the CFTC and other stakeholders remain wary of their potential risks and similarity to traditional gambling.

The outcome of ongoing legal battles and regulatory reviews will likely determine whether event contracts become mainstream financial products or remain restricted under traditional gambling frameworks. This decision will have profound implications not just for the platforms offering these contracts, but for the broader boundaries between financial markets and gambling in the digital age.

As Commodity Futures Law Reporter senior analyst James Miller noted: “What we’re witnessing is a fundamental debate about the definition of derivatives themselves. Are markets that allow betting on sports scores or election outcomes serving genuine economic purposes, or are they simply gambling with a veneer of financial sophistication? The answer will shape financial regulation for decades to come.”

Sources:

1. Commodity Futures Trading Commission (CFTC). “Statement on Review of Sports Event Contracts.” January 2025.
2. U.S. Court of Appeals for the D.C. Circuit. “KalshiEx LLC v. Commodity Futures Trading Commission.” October 2024.
3. Better Markets. “Report on Event Contracts: Backdoor Gambling in Financial Markets.” February 2025.
4. Wall Street Journal. “Robinhood Suspends Super Bowl Contracts After Regulatory Intervention.” February 2025.