No event contracts for you!

Want to bet on the 2024 presidential election? Not if the government has anything to say about it.

Last Friday, the Commodity Futures Trading Commission (CFTC) voted to propose new regulation to ban various “event contracts,” which the agency defines as “a type of derivative contract, typically with a binary payoff structure, based on the outcome of an underlying occurrence or event.”

For context, as part of the Dodd Frank Act, the CFTC has the power to prohibit certain event contracts if they 1) fall within the scope of certain “enumerated activities,” such as terrorism, assassination, war, and gaming, as well as any activity considered illegal under federal or state law, and 2) are contrary to public interest.

The CFTC is proposing that each enumerated activity be considered contrary to public interest by default, and, more importantly, that gaming should be more specifically defined to include the outcome of a political contest, the outcome of an awards contest, the outcome of a game in which one or more athletes compete, or an occurrence or non-occurrence in connection with such a contest or game.

TL;DR: events contracts for sporting events, award ceremonies, and political elections would be banned.

This isn’t the CFTC’s first conflict with the event contracts market. Seven months ago, prediction markets exchange Kalshi sued the CFTC for blocking its election contract markets.

While the CFTC claims these proposed changes are in the name of public interest, this move highlights inconsistencies in government regulation of different markets. For example, while the CFTC is trying to block event contracts related to “outcomes of games” and “awards contests,” Americans legally wagered $119 billion on sports and $185 billion in casinos in 2023. They also spent $95 billion on lottery tickets in 2021.

While event contracts differ structurally from these other examples (they are derivatives that change hands on exchanges, not one-off bets on football games, roulette wheels, or scratch off tickets), they accomplish the same goal: monetary payouts for accurate predictions. Blocking event contracts for “awards contests” and “game outcomes” while consumers already spend hundreds of billions on these very things seems inconsistent.