This story was originally published on MyNorthwest.com.
Sports gambling is surging across the United States, with Americans wagering more than $150 billion on games and matches last year alone.
Now, a high-stakes legal battle is unfolding over who controls one of the fastest-growing segments of that market: so-called “novelty betting.”
At the center of the dispute is whether online “sports event contracts,” which allow users to buy and sell positions tied to the outcome of sporting events, are traditional sports bets regulated by states, or financial derivatives governed by federal law.
State gambling regulators, including the Nevada Gaming Control Board, are suing platforms that offer the contracts, seeking to block them from operating within their borders. Regulators argued the products function like online sports betting, which in many states is tightly restricted or limited to licensed casinos.
On the other side is the Commodity Futures Trading Commission (CFTC), led by Chairman Michael Selig, which contends the contracts fall under federal commodities law. The agency maintains that “sports event contracts” are financial instruments, not wagers, and therefore subject to federal oversight rather than state gaming rules.
“American prediction markets have been hit with an onslaught of state-led litigation,” Selig recently said in a video posted on social media, explaining that the CFTC filed an amicus brief in a recent lawsuit brought in federal court to defend its exclusive jurisdiction over derivative markets. “Prediction markets aren’t new. The CFTC has regulated these markets for over two decades. They provide useful functions for society by allowing everyday Americans to hedge commercial risks like increases in temperature and energy price spikes; they also serve as an important check on our news media and our information streams.”
How novelty betting differs from traditional wagers
The distinction carries major implications.
Under traditional sports betting models, a bettor might place $10 at a casino window on a team covering a 4.5-point spread in the Super Bowl. In contrast, novelty betting platforms allow users to log on from a laptop or smartphone and purchase a “yes” or “no” position on whether a team will cover that spread. Those positions can be bought and sold before the game ends, similar to other exchange-traded contracts.
Because the CFTC views the products as derivatives, users in some states can access them online even where state law prohibits remote sports wagering outside casino property.
That interpretation has alarmed regulators in many of the 40 states that have legalized some form of sports betting since a 2018 U.S. Supreme Court decision cleared the way for states to authorize it.
Former NJ governor questions federal takeover of sports betting
Among the critics is former New Jersey Gov. Chris Christie, who championed the state’s effort to overturn the federal sports betting ban. Christie has questioned the CFTC’s assertion of authority over sports event contracts, noting that states fought for, and won, the right to regulate sports gambling themselves.
“It was a six-year fight to finally get the Supreme Court to do it, and when they said we could do it, they said this was a states’ rights issue,” Christie recently said on CNBC. “The CFTC wants to come in and become the national gaming board. How about if they focus on what they’re supposed to be focusing on, which is things like derivatives in the agriculture sector.”
Meanwhile, several high-profile companies are caught in the middle, including Kalshi and Polymarket, which offer event-based trading markets.
Case could head to Supreme Court
The issue has drawn additional scrutiny amid political connections. In August, Donald Trump Jr.’s venture capital group invested in Polymarket. More recently, he became a paid strategic adviser to Kalshi.
It remains unclear whether those ties will factor into the broader legal fight. Legal experts said the clash between state gaming authorities and federal regulators could ultimately be decided by the U.S. Supreme Court.
Until then, the rapidly expanding world of novelty betting, and who controls it, seems to remain an open question.
For Selig, it’s not.
“The CFTC is taking an important step to ensure that these markets have a place here in America and have the integrity and resilience and vibrancy that our derivatives markets deserve,” he said in his social media video. “To those who seek to challenge our authority in this space, let me be clear: We will see you in court.”
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