Prediction markets in esports: how event contracts are regulated

In 2026 a new kind of company arrived in esports. Prediction markets, platforms that let users buy contracts paying out on the outcome of an event, signed a tournament organizer, a team and a data distributor between February and June, and their users traded more than US$1 billion on esports matches in a year. Whether that activity is a regulated financial market or unlicensed gambling depends on who is asked, and in the United States the answer is now being written by a federal regulator, several state regulators and the courts at the same time.

This guide sets out how the system works as it stands on September 3, 2026: what an event contract is in the regulator's own terms, how a contract reaches a platform, what federal law allows the regulator to block, why several states treat the same contracts as gambling, what a Washington court decided in July, and what the published figures say about the size of the esports part of the market. It describes rules and positions; it gives no view on any platform, and it does not explain how to trade.

CFTC proposed rule, June 2026, for the 2025 total; Esports Insider, August 21, 2026, for the esports figure (365 days to July 30) and the state count.

What an event contract is

The Commodity Futures Trading Commission, the CFTC, is the federal agency that oversees futures, options and swaps in the United States. In its advance notice of proposed rulemaking on prediction markets, published in the Federal Register on March 16, 2026, it notes that the term event contract is defined neither in the Commodity Exchange Act nor in its own regulations. The agency says it has used the phrase since at least 2008 for derivatives that typically have a binary payoff, based on the outcome of an underlying occurrence or event.

Binary means the contract settles one of two ways: the event happens and the contract pays, or it does not and the contract pays nothing. An esports match fits that shape easily, which is why match results became a large share of what these platforms list.

The same notice gives the regulator's working definition of the platforms. In that document, a prediction market is a CFTC-registered designated contract market, or swap execution facility, that offers event contracts for trading. A designated contract market, usually shortened to DCM, is a federally registered exchange. The notice states that a prediction market offering swaps or futures to the general public must register with the CFTC as a DCM.

The vocabulary matters for the rest of this guide. The platforms and the press that covers them speak of trading, contracts and volume, not of bets and stakes. State gambling regulators, as the Washington case shows below, use the second vocabulary for the same transactions.

How a contract reaches the market

A registered exchange does not need the regulator's approval before listing a new contract. Under the CFTC's Regulation 40.2, a DCM may list a new contract by providing the Commission with a written certification that it complies with the Commodity Exchange Act and the agency's rules. The March notice calls this self-certification.

The third step is the exception, not the rule. The CFTC described the current version of that review in its June 2026 proposal: a review may start when the Commission finds that a contract may involve one of the listed activities, the Commission asks the exchange to suspend listing or trading while it looks at the contract, it posts a notice on its website, and it then issues an order approving or disapproving the contract by the end of the review period.

The volume of filings has changed what self-certification means in practice. According to the March notice, designated contract markets listed an average of about five event contracts a year between 2006 and 2020. In 2021 the number rose to 131. In 2025 exchanges certified about 1,600 event contracts for trading, and the number of applications for DCM registration more than doubled over the past year.

What the regulator can block

Federal law gives the CFTC one specific tool against event contracts. Section 5c(c)(5)(C) of the Commodity Exchange Act lets the Commission determine that certain event contracts are contrary to the public interest. The statute lists the activities concerned: activity that is unlawful under any federal or state law, terrorism, assassination, war, gaming, and other similar activity the Commission determines by rule to be contrary to the public interest. The Commission adopted Regulation 40.11 in 2011 to put that section into effect.

Gaming is the word that matters for sport and esports, and the law does not define it. Two attempts to settle the question have come and gone. In 2008 the Commission published a concept release on prediction markets and took no further action at that time. On June 10, 2024 it proposed rules to specify which event contracts fall within the statutory list. It withdrew that proposal on February 6, 2026, citing state regulatory actions and litigation over its exclusive jurisdiction.

The agency has used its power of review before. Its June 2026 proposal recalls an order of September 22, 2023 on contracts offered by Kalshi on which party would control Congress. The Commission found that they involved gaming and activity unlawful under state law, because staking value on the outcome of an election is gambling and conflicts with many state laws. The same reasoning asked whether a contract, considered as a whole, involves one of the listed activities.

The 2026 rulemaking

The current rulemaking began with the advance notice of March 2026. The Commission issued it on March 12 and asked for comments, which had to be received by April 30. The notice asked how the statute's core principles and the agency's rules apply to prediction markets, which types of event contracts could be prohibited as contrary to the public interest, and what costs and benefits are at stake.

Several of its questions bear directly on competitive gaming, even though the document never mentions esports or video games. It asks whether a sports competition should be treated differently from an award competition. It asks whether prediction markets are more likely than other exchanges to be open to manipulation, and notes that some events are under the control of a single person or a small group. It raises the misuse of inside information by informed participants. And in its questions on gaming contracts, it asks whether the participants tend to be younger than those who trade other financial instruments.

On June 10, 2026 the Commission published a proposed rule that answers one part of the March notice. It would amend Regulation 40.11 and set a framework in two stages: first, whether an event contract involves one of the listed activities; then, if it does, whether it is contrary to the public interest. It would define the words involve and gaming, keep a 90-day review with procedural protections, and apply public interest factors contract by contract. The proposal states that it relies on that contract-specific analysis rather than on a categorical prohibition based on the identity of the underlying event.

The factors that the proposal applies to every listed activity are the contract's use for price discovery and information aggregation, potential threats to market integrity, and the compliance and self-regulatory challenges it raises for the exchange. Under gaming, the proposal treats games of random chance as likely contrary to the public interest. Comments were invited for 45 days after publication in the Federal Register.

Michael S. Selig, the CFTC's chairman, gave the agency's aim in one sentence. "The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation," he said in the June 10 release.

The federal position on the states

The CFTC's case rests on the word exclusive. The Commodity Exchange Act, at 7 U.S.C. § 2(a)(1)(A), gives the Commission exclusive jurisdiction over certain transactions on designated contract markets. In its June proposal the agency writes that this jurisdiction supersedes state as well as federal agencies, and argues against what it calls a patchwork of 50 state regulations.

It has taken that argument to court. On April 2, 2026 the CFTC announced that it had sued three states, Arizona, Connecticut and Illinois, seeking declaratory and injunctive relief against state actions aimed at CFTC-registered exchanges. The release says several states had tried to outlaw, regulate or restrain exchange activity involving event contracts, and recalls two points of history: the CFTC first recognized event contracts in 1992, when it allowed the Iowa Electronic Markets to operate, and after the 2008 financial crisis Congress gave it comprehensive authority over event contracts based on a commodity.

The states that resist read the same law differently. In Washington's case, as the order below sets out, the argument is that a contract on an event is a bet under state law whoever registered the exchange, and that federal derivatives law leaves state gambling law in place.

The Washington ruling

The clearest statement of the state view so far came from Washington. On December 9, 2025 the Washington State Gambling Commission published a notice whose key sentence the court later quoted: "[o]ffering events-based contracts or participating in these markets is not authorized in Washington State." The state then sued Kalshi in King County Superior Court, in the case State of Washington v. KalshiEx, LLC, No. 26-2-10264-3 SEA.

Judge John F. McHale heard argument on July 10, 2026 and granted the state's amended motion for a preliminary injunction in an order signed on July 17 and filed on July 20. A preliminary injunction is a temporary order given before trial when a party shows it is likely to win; it is not a final judgment.

The order sets out Washington's starting point. In 2006, it says, the legislature effectively banned all online gambling in the state; in 2020 it allowed a limited exception for sports wagering on tribal lands under a tribal gaming compact. The court found that each contract on the platform risks money, relies in part on chance and promises a payout to winners, and that the platform's claims to offer legal betting in Washington were likely to mislead a reasonable consumer.

On federal law, the court held that the exclusive-jurisdiction clause of the Commodity Exchange Act contains no express preemption language and was not written to exclude state regulation, relying among other cases on a decision of the federal Sixth Circuit appeals court of April 24, 2026. It accepted that the act preempts the field of regulating exchanges, but not Washington's enforcement of its gambling statute. The court reasoned that the regulation of gambling and the regulation of futures markets are different fields, and complying with Washington law would not stop the exchange from complying with federal law.

The order also answered an argument drawn from the CFTC's own rules. Regulation 38.151(b) requires a designated contract market to give impartial access to its market. The court found that being unable to match Washington users with users elsewhere is not discrimination, and that the rule does not require an exchange to break state law.

The parties had until noon on August 3 to propose terms, and the court required no bond from the state. The order cites the state's Consumer Protection Act, its Gambling Act, including the provisions on bookmaking, professional gambling and online gambling, and the statute on the recovery of money lost at gambling. It also notes that Kalshi was already subject to a preliminary injunction in Nevada.

Where esports fits in

None of the federal documents described here names esports, and neither does the Washington order. Esports enters through the general categories: a match is a competition, and whether a contract on it is gaming, and whether a state may forbid it, are the questions the rulemaking and the courts have not finished answering. Where those answers fall for a given contract and a given state depends on the case.

Age is one point where the documents touch on who takes part. The Washington order found that Kalshi solicits all Washington consumers over 18, and the March notice asks whether those who trade gaming contracts tend to be younger than those who trade other financial instruments.

The category's arrival in esports business followed in the same months. BLAST named Polymarket its official prediction partner on February 10 for seven of its Counter-Strike 2 and Dota 2 events in 2026. SINNERS Esports, a Czech Counter-Strike 2 organization, announced Polymarket as its official prediction market partner on March 25. And on June 23 the data company GRID announced that it supplies official match data, visualizations and live streams to an esports hub on Polymarket. No financial terms were disclosed for any of the three.

Publishers also run prediction products of their own. On July 22, GRID announced that it feeds official server data into Riot Games' LoL Esports Crystal Ball, which runs predictions, statistics and leaderboards for fans. None of the CFTC documents or the Washington order described here concerns a product of that kind.

How large the esports market is

The published figures come from press analysis of the platforms' own data, not from the regulator. In its June proposal the CFTC put total trading across CFTC-registered prediction markets above US$25 billion in 2025, which it described as still a small share of a futures market with a notional value of around US$31 trillion that year. The agency gives no figure for sport or esports.

For esports, Esports Insider reported on August 21 that users traded more than US$1.2 billion on esports on Polymarket over the 365 days to July 30, 2026, a little more than the roughly US$1 billion on Kalshi. On Kalshi, esports trading over the 30 days before the article passed US$344 million, against US$113 million in April. League of Legends and Counter-Strike 2 made up most of it, with Valorant rising; on Polymarket, trading was concentrated on League of Legends, Counter-Strike 2, Dota 2 and Valorant, with little outside those four games. Earlier, the same outlet had counted about US$36 million of esports contracts traded on Kalshi in the single week of June 1 to 7.

Those totals need one caution, which the August article itself gives. Volume counts the potential payout, not the money put at risk. A US$2 contract that could return US$4 shows as US$4 of volume, and a combined contract on several outcomes that could return US$40 shows as US$40, even though the same US$2 is at risk. The figures measure activity, not the money that changed hands.

Integrity questions

The federal documents treat integrity as part of the public interest test. Potential threats to market integrity are one of the three factors the June proposal applies to every listed activity, and the March notice gives a full section of its questions to informed trading and the misuse of nonpublic information, citing the anti-fraud and trade-practice provisions of the Commodity Exchange Act.

The mechanism the March notice describes is an event whose outcome is under the control of a single person or a small group. In esports that group would be players, coaches and staff. Those bound by the Esports Integrity Commission's anti-corruption code are already barred from betting on every match in the game they play professionally. Whether a purchase of event contracts counts as a bet under such codes is not addressed in the CFTC documents.

Outside the United States

The federal and state debate is American, but the platforms' reach is international and so is the response. Esports Insider reported on August 21 that South Korea and Denmark had announced bans on Polymarket, bringing the number of countries where it is restricted to more than 40, and that Washington had become the third US state to enforce a ban on Kalshi, after Nevada and Michigan.

Each of those decisions rests on national or state law, and none of them is a rule about esports as such. They apply to the platforms as a whole, so an esports contract is affected only because it is offered on a platform that a country or state has blocked.

What comes next

Three processes are under way as of early September 2026, and each has its own calendar. At the federal level, the June proposal on event contracts involving the listed activities was open for comment for 45 days after its Federal Register publication, and the CFTC described the March notice as a step that may lead to further rulemaking. In the federal courts, the agency's suits against Arizona, Connecticut and Illinois seek to establish that its jurisdiction excludes state action. In the state courts, the Washington order is a preliminary injunction, so the case continues toward a final decision.

Until one of those processes settles the question of gaming, the status of an esports event contract depends on where the user is: lawful on a federally registered exchange in the CFTC's reading, unauthorized gambling in Washington's.

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