Original Author: ChandlerZ, Foresight News

On March 23, California Democratic Senator Adam Schiff and Utah Republican Senator John Curtis jointly submitted a legislative proposal, calling for a ban on platforms regulated by the U.S. Commodity Futures Trading Commission (CFTC) from offering contracts related to sporting events and casino-type games. This is the Senate's first bipartisan proposal targeting the regulation of prediction markets, directly aimed at the U.S. operations of Kalshi and Polymarket.

On March 20, the U.S. Federal Appeals Court approved a temporary restraining order against Kalshi in Nevada, preventing it from conducting sports event contracts. Attorney Daniel Wallach stated that the company would not be able to operate in Nevada for at least 14 days prior to the preliminary injunction hearing. "Given that under Nevada law, the temporary restraining order is non-appealable, Kalshi will be forced to exit the state during this period." A few days prior, Arizona had already filed criminal charges against Kalshi's parent company, accusing it of illegally operating gambling activities without a license.

Over the past three months, four federal bills targeting prediction markets have been introduced in the U.S., with the Arizona Attorney General filing 20 criminal charges against Kalshi, and a Massachusetts court ruling that its sports contracts violate state law. Law enforcement actions in states like Nevada and Tennessee, alongside responses from federal agencies, are forming a multi-faceted regulatory battle.

What the Bill Aims to Ban and What Legislators Say

The scope of the Schiff-Curtis bill’s ban covers two categories: contracts related to sporting events (professional leagues and college events), and casino-type game contracts (slot machines, video poker, blackjack, bingo, etc.). Currently, trading volumes on Kalshi and Polymarket are highly concentrated in professional sports and college events, with both platforms competing directly with traditional gambling platforms like FanDuel and DraftKings. On the day of this year's Super Bowl, Kalshi processed trading volumes of $871 million for sports-related contracts, surpassing a total of $1 billion in NFL-related markets for the day, a scale that has made multiple state governments realize that the competition for interests has become substantial.

Each legislator emphasized different aspects; Schiff pointed to regulatory arbitrage, claiming the CFTC is giving a green light to such markets, even promoting their development. It is time for Congress to intervene and close this regulatory loophole. This model violates consumer protection laws across states, infringes upon tribal sovereignty, and will not generate any revenue for public finances. Curtis highlighted the risks of addiction, stating that too many young people in Utah are becoming exposed to addictive sports betting and casino-type game contracts, which should be regulated by individual states rather than federal regulatory agencies.

Schiff's mention of "tribal sovereignty" is noteworthy. Indian tribes hold legal gambling licenses in several states, making them an integral part of the current state-level gambling regulatory framework and one of the most directly affected stakeholders by the impacts of prediction markets. This provides an additional source of political support for the bill beyond party lines.

Federal and State: Fighting Over the Same Contracts

The emergence of the bill is rooted in an unresolved jurisdictional dispute. The CFTC claims exclusive federal jurisdiction and has submitted a brief to the Ninth Circuit Court of Appeals in February, asserting its exclusive jurisdiction over commodity derivatives markets, with no authority for states to intervene. Kalshi has adopted the same logic and has sued Arizona, Iowa, Utah, and other states, attempting to block state enforcement. Polymarket sued Michigan in early March on similar grounds.

The states' responses have been to bypass the dispute and take direct action; Massachusetts, Michigan, Nevada, and Arizona have successively taken action, asserting that these contracts are essentially gambling products that should be regulated at the state level. A federal court in Tennessee ruled in favor of Kalshi, determining its sports contracts to be swap products under federal jurisdiction; however, a Massachusetts court ruled against this view, stating that the CFTC's claim of exclusive jurisdiction is "too broad." The same set of contracts saw two courts reach completely opposite conclusions, making legislation be regarded as the only way forward.

Sports contracts are in the most disadvantageous position in this dispute, as the CFTC's inclusion of prediction markets under the event contracts framework is based on the economic functions of these contracts, such as risk hedging and price discovery. Contracts based on election results and policy direction can still be somewhat justified; however, contracts centered around event outcomes have almost no demonstrable commercial hedging demand, making it extremely difficult to delineate the boundaries from traditional gambling.

MLB Entangled in a Betting Scandal Turns to Partner with Polymarket

One detail worth highlighting in this regulatory battle is that Major League Baseball (MLB) is currently embroiled in the worst betting scandal in decades, yet it simultaneously signed a partnership agreement with Polymarket, allowing it to operate as the league's official prediction market platform, exclusively using MLB event data and branding, with both parties agreeing to cooperate in the oversight of baseball-related betting on the platform.

The league's rationale is that betting on events cannot be stopped, and including it in their oversight is better than allowing it to operate in a gray area. This is in stark contrast to Schiff's legislative approach, which seeks to completely remove sports contracts from CFTC-regulated platforms, while the other opts to bring the prediction market under the league's own monitoring via a partnership agreement.

The risks that legislators are concerned about have already been exemplified on Polymarket. In the hours before the U.S. military launched strikes against Iran, the platform saw large anonymous bets, with users precisely predicting the course of events and cashing out hundreds of thousands of dollars. For most participants lacking informational advantages, the structure of sports prediction markets is highly similar to traditional gambling, with publicly available information already priced in, and underdog markets often having extremely poor liquidity. For participants possessing insider information, a platform with abundant liquidity serves as an almost perfect arbitrage tool, which is the source of event manipulation risks and the core concern of the legislators.

The next key point is that the 14-day hearing in Nevada will determine whether the temporary restraining order becomes a permanent injunction; the criminal case in Arizona is being heard, and Kalshi has urged the Attorney General in a letter to withdraw the charges, leaving the outcome uncertain.

How far the Schiff-Curtis bill can go in the Republican-controlled Senate remains a significant unknown. Previously, some legislators have pointed out that due to Trump's own profits from the prediction market, some Republican legislators' willingness to support this issue has been affected.

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