In this week’s column, California Sports Lawyer® CEO and Managing Attorney Jeremy M. Evans writes about the growing and evolving sports futures market and how it should be regulated.
A sportsbook sets the odds and pays based on the outcome of the sporting event; a futures contract fixes a price today, and the financial result is determined by the market’s movement between trade date and settlement.
You can read the full column below. (Past columns can be found, here).
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There is a battle over the future of the futures market in the United States. The debate is whether futures markets for sporting events are considered gambling and sports betting regulated by state law post-Murphy (2018) or under federal law. Significant tax dollars, fees, and regulatory control are at stake.
Currently, the futures market is grounded in the Commodity Exchange Act (CEA), which governs futures trading in the United States and assigns oversight to the Commodity Futures Trading Commission (CFTC). (Note: CEA was enacted into law in 1936, establishing the federal framework for regulating futures trading in the United States. CFTC was created in 1974 by the Commodity Futures Trading Commission Act, which amended the CEA and established the CFTC as an independent federal agency to oversee futures, options, and later swaps markets). The CFTC describes futures as: “Contracts for the purchase or sale of a commodity for delivery in the future at a price determined today.”
The CFTC defines “commodity” very broadly to include physical goods and financial instruments, indices, rates, and events. For example, “commodities” include physical goods like crude oil or corn, financial instruments such as U.S. Treasury bonds, indices like the S&P 500, NASDAQ or Dow Jones Industrial Average, economic benchmarks such as interest rates for mortgages, and, in limited and controversial cases, event-based contracts tied to election outcomes or economic data releases. Sports futures enter the picture only at the “event-based contract”, where futures law is being stretched, it is argued, to cover outcomes that look less like hedging risk and more like wagering. At present, Kalshi is the primary company testing sports-related event contracts under federal futures law, while traditional sportsbooks like DraftKings and FanDuel remain regulated exclusively at the state level.
Sports gambling (or sports betting) is the activity of wagering money or something of value on the outcome of a sporting event, where the bettor risks loss in exchange for the possibility of a payout, and where the activity is regulated under state gambling laws rather than federal commodities or securities law. Sports betting is generally defined as staking or risking something of value on the outcome of a sporting event with the chance of receiving something of value if a certain outcome occurs, whereas a futures contract is an agreement to buy or sell a commodity for future delivery (often cash-settled) at a price set today, traded in federally regulated markets under the CEA/CFTC framework mentioned earlier. A sportsbook sets the odds and pays based on the outcome of the sporting event; a futures contract fixes a price today, and the financial result is determined by the market’s movement between trade date and settlement.
The difference may seem slight, but it is important to distinguish them. When one see’s how differently the law treats “risk transfer” versus “risk taking,” the real fight comes into focus: who gets to regulate it, the individual states or the federal government under CEA/CFTC? Simply out, risk transfer is the futures market, whereas risk taking is sports betting. Under the law, futures markets are designed to transfer existing economic risk, while sports betting involves voluntarily taking on risk for entertainment.
Kalshi is at the center of the debate with Members of Congress questioning whether the futures market intended to include sports event futures. It is of note that Kalshi is a privately held, venture-backed company founded by Tarek Mansour and Luana Lopes Lara, and is not owned by any sportsbook, casino, or sports league. One thing is certain, a decision on the matter before the court and Congress will likely determine Kalshi’s future and whether sports futures and sports betting are different.
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About Jeremy M. Evans:
Jeremy M. Evans is the Chief Entrepreneur Officer, Founder & Managing Attorney at California Sports Lawyer®, representing entertainment, media, and sports clients in contractual, intellectual property, and dealmaking matters. Evans is an award-winning attorney and industry leader based in Los Angeles and Newport Beach, California. He can be reached at Jeremy@CSLlegal.com. www.CSLlegal.com.
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