CFTC Argues for Federal Preemption of State Gambling Law
Commentary by Steven Lofchie
In an amicus brief before the Sixth Circuit, the CFTC argued that sports-related event contracts listed on designated contract markets ("DCMs") are "swaps" within the agency's exclusive jurisdiction and that state gambling laws cannot reach them.
The CFTC urged the U.S. Court of Appeals to reverse a District Court ruling in KalshiEX, LLC v. Schuler that denied a preliminary injunction against Ohio officials for applying state gambling law to sports-related event contracts traded on CFTC-registered exchanges.
The CFTC argued that CEA Section 2(a)(1)(A) endows the federal agency with exclusive jurisdiction over swaps on DCMs. The agency argued that Congress in 1974 removed earlier savings language to ensure federal preemption was complete and that Dodd-Frank in 2010 extended that exclusive jurisdiction to swaps. The CFTC also argued that Congress occupies the field of regulation of trading on a DCM, and that conflict preemption arises both because DCMs must provide impartial access to participants nationwide under CFTC Rule 38.151(b) and because state restrictions would obstruct the federal regulatory regime.
The CFTC's argument is consistent with the Third Circuit's 2026 ruling in KalshiEX, LLC v. Flaherty which held that sports event contracts are swaps and that state gambling restrictions on them are preempted. Trial courts in Arizona and Tennessee have ruled similarly in parallel Kalshi cases.
Commentary
Under Dodd Frank, Congress defined the term "swap" so that it was quite broad, seemingly over-broad. (See, "What is a Swap? Maybe (Almost) Everything? You Gotta Problem with That?") As it happens in the real world, the very broad definition of "swap" has not had too much in the way of ill-effects. Generally, market participants understood - words of the statute notwithstanding - what a swap was, that Congress was not going to rethink its definition, and that there was no real harm done if there was some uncertainty around the edges.
Until now.
On Kalshi, one can take a position on "who will be on the cover of Madden NFL 27." Does that meet the definition of "swap" as defined by Dodd-Frank? (Note: the inside favorites are Drake Maye and Myles Garrett; an interesting combination because when they played last year, Drake's team won, but Myles sacked Drake 5x.). Anyways: under the CFTC brief in the matter, that might very well be a swap. But then, so would most anything.
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