The federal agency that regulates prediction markets such as Kalshi and Polymarket is proposing rulemaking designed to determine, among other things, just what qualifies as “gaming.”

Prediction markets are on-line platforms that accept wagers on almost everything, from sporting events to political contests.

One analyst predicts as much as $10 billion in World Cup betting on just Kalshi and Polymarket, two leading platforms. The NBA Finals is generating hundreds of millions of dollars with each game, and Stanley Cup betting volume reached $511 million on Polymarket alone.

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The proposed rules from the Commodity Futures Trading Commission, filed Wednesday, come as states and tribal governments wrangle with prediction markets and, by extension the CFTC, about who has jurisdiction over sports bets accepted by the platforms. Interested parties have 45 days to comment.

Nevada is one of at least 18 states involved in litigation with the platforms, which contend they are exclusively under the jurisdiction of the CFTC. States and tribal governments assert the platforms are violating the law by accepting sports bets within their boundaries, and maintain that Congress, which enacted regulations of the platform trading as part of the Dodd-Frank Act, did not strip states of their rights to regulate sports betting.

“We appreciate the CFTC’s efforts to develop a regulatory framework for prediction markets and event contracts,” Trey Delap, executive director of the Nevada Council on Problem Gambling said via email, adding he’s still reviewing the 200-plus page document. “Our initial observation is that it provides a framework for protecting the market. We believe the next step is developing an equally strong framework for protecting the participant.”

The CFTC “has continued to observe growth in the number and variety of event contracts listed for trading by CFTC-registered entities, including contracts referencing sporting events,” says an announcement posted on the CFTC website.

“The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation,” CFTC Chairman Michael Selig, an appointee of President Donald Trump, whose family has an interest in a variety of prediction platforms, said in a statement Wednesday. “This proposal gives the Commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward.”

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The proposal defines gaming as recreation or entertainment that is governed by rules and is based on measurable outcomes determined by skilled activity.

“Within gaming, the Commission aims to permit contracts settled on aggregate sports outcomes with objective data and integrity infrastructure, while prohibiting pure‑chance games and high‑risk sports‑adjacent designs (e.g., injury, officiating‑only, discrete actions, altercations, pre‑collegiate events),” the proposed rule says.

In other words, the CFTC intends to prohibit “gambling” – defined as bets based on the acts of officials such as referees, fights among participants (with the exception of combat sports such as boxing and mixed martial arts), acts by rogue participants, and youth sports.

“This is a remarkable attempt to redefine what constitutes sports betting. It makes a mockery of congressional intent while going against a bipartisan coalition of 41 Attorneys General, countless legislators across the country, and the 81% of voters who recognize that the so-called ‘prediction markets’ are backdoor sportsbooks evading state and tribal law,” said American Gaming Association President Bill Miller.

The Nevada Resort Association, which is a party to the Nevada Gaming Control Board’s lawsuit with Kalshi, did not respond to a request for comment on the CFTC’s proposed rulemaking.

“There’s been a lot of political, legal, and moneymaking pressure over the last year for somebody to do something, so even introducing proposed federal rules could be a pressure-relief valve,” say Steve Light and Kathryn Rand, visiting professors at UNLV’s Boyd School of Law who specialize in tribal gaming matters.

The rulemaking, they say, “at a minimum signals the agency’s awareness that conventional administrative processes — and regulation — remain relevant to effective governance and also, in establishing the parameters for economic activity and market integrity.”

The CFTC says its proposal seeks to nail down what types of event contracts “may be subject to a determination that they are contrary to the public interest…“

The Commodity Exchange Act, which regulates derivatives such as prediction markets, lists activities involving “terrorism, assassination, war, gaming or conduct that is unlawful under federal or state law” as contrary to the public interest.

Light and Rand say that by “acknowledging that new guardrails are needed for, say, event contracts on unlawful activity, or terrorism, assassination, and war, and that some contracts may, in fact, be contrary to the ‘public interest,’ the CFTC has shifted its position in a way that some critics likely will welcome — at least as a starting point.”

Light and Rand note the “discussion of ‘gaming’ vs. ‘gambling’ in the proposed rules is lengthy and it will be interesting to see how states, tribes, and commercial gaming operators will respond initially.”

Miller of the AGA says the “evasion of state and tribal laws” by prediction markets is estimated to have cost communities more than $1 billion in sports betting tax revenue. “This siphoning will intensify as ‘prediction markets’ continue refusing to comply with state and tribal law.”

Experts contend the financial implications extend beyond lost tax revenue, and will saddle states and tribal governments with increased social costs of gambling addiction.

“As prediction markets continue to evolve, the conversation should also address consumer protection measures such as age verification, responsible gambling safeguards, self-exclusion tools, prevention, and access to treatment resources,” said Delap of the Nevada Council on Problem Gambling. “We believe that innovation and consumer protection can advance together, and we believe those discussions should remain part of the broader conversation surrounding prediction markets.”

Last month, in a move viewed as window dressing by some stakeholders, Kalshi forged a partnership with the National Council on Problem Gambling, funding a $2 million, two-year investment to “support a strategic initiative focused on trader health and safety,” according to a news release from the council.