The Commodity Futures Trading Commission has proposed new rules that could give prediction markets a clearer path to offering contracts tied to sports, elections, and other real-world events. The proposal, published on June 10 , draws an important distinction between event contracts that may serve an economic purpose and games based purely on chance. Under the CFTC’s approach, many contracts tied to sports outcomes would not automatically be considered contrary to the public interest, even though federal law still treats gambling as a restricted category. The shift could become a major turning point for platforms such as Kalshi and Polymarket, which have grown rapidly as traders increasingly use prediction markets to bet on political, economic, and cultural outcomes. CFTC Draws A Line Between Sports Contracts And Gambling The draft rules suggest that not all sports-related contracts should be treated the same way. Markets tied to final match results, season outcomes, or broader performance statistics may be viewed as serving a legitimate economic function because they contribute to price discovery. That logic gives sports prediction markets a stronger regulatory argument than games based solely on chance. But the proposal does not give the industry a blank check. Contracts linked to player injuries, referee decisions, or other events that could be vulnerable to manipulation are likely to face much tougher scrutiny. The CFTC’s message is that each contract will still need to pass a public interest test. Gary Kalbaugh, a partner at Cahill Gordon & Reindel LLP, said the proposal appears to be based on principles rather than broad approval. In practice, that means prediction market operators may get more clarity, but they will still have to show that individual contracts do not create unacceptable risks. The agency is also clarifying its position on election contracts. Under the CFTC’s current interpretation, these contracts are not considered gambling under federal law. That could reduce uncertainty for prediction market platforms that saw a surge of interest during recent election cycles, as traders used them to track expectations around political outcomes. Kalshi And Polymarket Move Closer To Wall Street The proposal arrives as prediction markets are becoming harder for traditional finance to ignore. Kalshi and Polymarket have both reached multibillion-dollar valuations, helped by growing interest from retail users, institutional investors, and media companies. Their rise has turned prediction markets from a niche corner of online trading into a serious regulatory and financial question. Both companies are also building closer ties with established financial institutions. Kalshi has partnered with Nasdaq on prediction markets connected to pre-IPO valuations of private companies. Polymarket, meanwhile, has reached an agreement with Dow Jones to integrate real-time prediction market data into media brands including The Wall Street Journal. These partnerships show how quickly event contracts are moving into the mainstream. What once looked like a speculative side market is now being positioned as a possible source of real-time signals for politics, finance, sports, and economic risk. Melinda Roth, a professor of sports law and corporate finance at Georgetown University Law School, has noted that prediction markets are increasingly entering mainstream business and media channels. But the central question remains unresolved: are event contracts financial instruments, or are they simply another form of gambling? The Biggest Risk The Rules May Not Solve Supporters of prediction markets argue that these contracts can help investors hedge risks and reveal market expectations more efficiently than polls, surveys, or traditional commentary. Bernstein analysts have also noted rising institutional participation, with investors looking at binary event contracts as a possible tool for managing macroeconomic risk. Still, the proposal leaves one major concern only partly addressed: market integrity. Large and well-timed trades in event contracts have already raised concerns about whether some participants may be using non-public information. That risk becomes more serious as sports markets grow, especially when contracts are tied to events involving teams, athletes, referees, or insiders with access to sensitive information. Opponents of the proposal, including the group Gambling Is Not Investing, argue that Congress never intended federal derivatives law to become a backdoor route for nationwide sports betting. They say the CFTC risks allowing financial regulation to override state gambling laws. That tension could eventually lead to a larger legal fight between federal and state authorities. Whether the issue reaches the Supreme Court remains uncertain, but the outcome could determine whether prediction markets become a lasting part of the financial system or remain stuck in a temporary regulatory gray zone. For now, the CFTC’s proposal gives the industry something it has long wanted: a clearer framework. But it also raises a bigger question that regulators have not fully answered yet. If a contract looks like sports betting, trades like a financial product, and is regulated by a federal markets agency, what exactly is it?