Introduction
Prediction markets are no longer an emerging curiosity. They are a federal enforcement priority. In just the past three months, two landmark insider trading prosecutions, a Commodity Futures Trading Commission (“CFTC” or “the Commission”) proposed rulemaking, congressional investigations, and new platform-level compliance mandates have reshaped the risk landscape for anyone operating in or adjacent to the prediction market and regulated gaming industries. As we detailed in recent alerts, Insider Trading Meets Prediction Markets and CFTC Issues Advance Notice of Proposed Rulemaking on Prediction Markets, federal authorities have made clear that prediction markets are regulated markets subject to the same anti-fraud provisions that have long governed traditional financial markets. While significant litigation is ongoing between states with regulated sports betting and prediction platforms and federal regulatory authorities, that litigation will take time to run its course, and the outcome remains uncertain.
Sports event contracts are pulling the gaming industry into this enforcement environment. Companies and their employees face real criminal exposure. Kalshi’s new employer-disclosure mandate signals where compliance is heading. This alert focuses on what comes next.
The CFTC Moves to Formally Allow Sports Betting on Prediction Markets
On June 10, 2026, the CFTC published a Notice of Proposed Rulemaking that would, for the first time, establish a formal regulatory framework governing which event contracts may be listed on prediction market exchanges and which may not. The most commercially significant piece: its treatment of sports. The CFTC’s preliminary view is that event contracts based on the aggregate outcomes of professional or collegiate sports events are unlikely to be found contrary to the public interest, provided they settle on objective, verifiable criteria and are listed by platforms that maintain appropriate surveillance, trading prohibitions, and coordination with sports governing bodies.
Put plainly, the CFTC is signaling that prediction markets will be allowed to keep offering what amounts to nationwide sports betting—outside the state-regulated gaming framework that has governed sports wagering since Murphy v. NCAA in 2018 (holding that the Professional and Amateur Sports Protection Act violated the Tenth Amendment by commanding states to maintain sports betting bans, thereby enabling states to legalize sports gambling).
The proposed rule does draw lines. The Commission identifies five categories of sports event contracts it preliminarily believes would be contrary to the public interest: player-injury contracts; officiating-outcome contracts; discrete-action contracts tied to a specific play, pitch, shot, foul, or penalty by an identified participant; physical-altercation contracts (with a carve-out for combat sports where physical contact is sanctioned); and contracts on pre-collegiate sports events. Bets on casino-style games of pure chance are also described as “highly unlikely” to be permitted.
But most sports wagering currently offered on platforms like Kalshi—game outcomes, point spreads, over/under totals, tournament advancement, and even individual player statistical performance proposition bets—appears positioned to survive under the proposed framework. The CFTC reasons that these contracts serve “price discovery” functions because their odds reflect the approximate probability of real-world events. The Commission also proposes weighing whether prohibition would simply push activity into less transparent foreign venues, diminishing CFTC oversight.
The Notice of Proposed Rule Making also adopts a specific definition of “gaming” tied to the ordinary meaning of “game,” encompassing sports games, athletic competitions, and recreational games including games of chance. Importantly, the Commission would not treat an activity as “gaming” merely because gambling occurs in connection with it. This is a narrower reading than many state regulators had urged.
For the regulated gaming industry, this is a watershed moment. If adopted, the rule would effectively federalize a substantial portion of sports wagering and place it beyond the reach of state gaming commissions, state licensing requirements, and state gambling taxes. The American Gaming Association has called it “a remarkable attempt to redefine what constitutes sports betting.” Forty states and the District of Columbia have legalized sports gambling, and 39 state attorneys general have signed onto briefs opposing the CFTC’s assertion of exclusive jurisdiction. The CFTC has responded by suing Arizona, Connecticut, Illinois, and New York for what it characterizes as intrusion on its exclusive jurisdiction.
Comments on the proposed rule are due 45 days (July 25, 2027) after publication in the Federal Register.
The CFTC is not merely proposing rules—it is already approving new entrants. On June 11, 2026, sports prediction company ProphetX received CFTC approval to register as a federally regulated prediction market exchange focused on sports-based event contracts, becoming the first American sports-native, direct-clearing prediction market to launch in full compliance with federal law. The approval allows the New York-based company to operate in every state as a federally regulated prediction market, bypassing state gaming regulations entirely. ProphetX plans to operate a vertically integrated marketplace where users can directly trade, clear, and settle event-based contracts under CFTC oversight, including a “request for quote” parlay mechanism that mirrors institutional trading protocols used in traditional financial markets.
The Scale of Sports Trading on Prediction Markets
The proposed rule comes amid explosive market growth. As of February 2026, roughly 87 percent of Kalshi’s $39.7 billion traded in the past year was on sports. On Polymarket, which traded $36.2 billion in the same period, sports contracts are the largest single category at approximately 38 percent of volume. In the past year, contract volumes on Kalshi and Polymarket alone have grown more than ten-fold.
As we noted in our prior alert, while contracts based on cultural and political events are important, the growth is due primarily to the CFTC’s encouragement and allowance of sporting event outcomes. Sports event contracts began appearing on CFTC-regulated exchanges in early 2025, and Kalshi cleared over $1 billion in sports trades in the first five months of 2025 alone. By the end of 2025, sports contracts were nearly 90 percent of those traded on the platform.
The practical reality is that these contracts are, from the end user’s perspective, functionally identical to bets at a traditional sportsbook. Users can wager on game winners, point spreads, totals, and player-specific proposition bets. That functional equivalence has put prediction market platforms on a direct collision course with the 40 states that have legalized and regulated sports gambling, as well as the traditional gaming industry operating within that framework.
The legal battle over these platforms continues to intensify. Major trading platforms, including Robinhood and Kalshi, are embroiled in a nationwide fight over the legality of event contracts, producing a patchwork of early rulings with several courts barring event or sports event contract offerings from going live in certain states. In April 2026, the Third Circuit became the first federal appeals court to weigh in, backing Kalshi’s efforts to keep its sports contracts on offer. Meanwhile, nine Democratic lawmakers are pressing the Federal Trade Commission to investigate whether prediction market platforms are using deceptive advertising tactics—presenting what are treated as financial tools for regulatory purposes as sports betting products in consumer-facing ads. Robinhood was also hit with a new class action in June 2026 alleging it tricks consumers into illegally gambling by disguising its event contracts as investing when they are, in reality, unregulated sports betting that violates state gambling laws.
Prediction market exchanges currently avoid state-level restrictions that apply to traditional sportsbooks, including stricter know your customer (“KYC”) requirements, more stringent age requirements (legalized sports gambling generally requires participants to be 21 or older, while event contracts are available to those 18 and older), and sports gambling taxes paid at both the state and federal level. The CFTC’s proposed rule does not address minimum age requirements, and Kalshi has specifically asked the Commission to keep the trading age at 18.
The Criminal Enforcement Landscape
The enforcement apparatus now targeting prediction markets is formidable, and the sports industry sits squarely in its crosshairs. As detailed in our prior alert, the Department of Justice (“DOJ”) and CFTC have brought two precedent-setting insider trading prosecutions in rapid succession.
In April 2026, the prosecution of U.S. Army Master Sergeant Gannon Ken Van Dyke marked the first-ever invocation of the so-called “Eddie Murphy Rule” under CEA Section 4c(a)(4), charging a prediction market participant with using classified military intelligence to profit from event contracts. A month later, the prosecution of Google software engineer Michele Spagnuolo extended the enforcement framework to corporate insiders under the misappropriation theory, alleging that Spagnuolo earned more than $1.2 million trading on Polymarket using confidential company data.
But the critical development for the gaming and sports industries is what CFTC Director of Enforcement David I. Miller said in his March 2026 speech identifying insider trading in prediction markets as one of the CFTC's five enforcement priorities. Miller referred specifically to sports-related scenarios. An NBA team employee, Michele Spagnuolo, with advance knowledge of a player’s injury who trades injury-related event contracts could face criminal and civil liability. The misappropriation theory applies whenever someone trades in violation of a duty owed to an employer under a confidentiality agreement, non-disclosure agreement, or employment contract. CFTC Chairman Selig has reinforced this posture publicly, and the Commission has shown no signs of backing off.
The legal theories available to prosecutors are expansive. The Van Dyke and Spagnuolo cases show that the government can bring charges under multiple statutes simultaneously—CEA Section 6(c)(1) and Rule 180.1 (the CFTC's anti-fraud provision modeled on SEC Rule 10b-5), the Eddie Murphy Rule (Section 4c(a)(4)), wire fraud, and money laundering. Each carries substantial criminal penalties. The DOJ’s U.S. Attorney for the Southern District of New York has publicly signaled that prosecutors are actively examining what laws can be brought to bear in this space.
Kalshi’s New Employer-Disclosure Mandate
On June 10, 2026, Kalshi announced sweeping new market integrity measures with significant implications for gaming and sports companies. The most notable: a new requirement that users trading in markets deemed to carry heightened insider trading or manipulation risk must disclose the identity of their employer before placing trades. The policy takes effect immediately and follows recommendations from an independent Surveillance Audit Committee that reviewed Kalshi’s enforcement systems, monitoring tools, and trading controls.
The process is designed to identify individuals who may have access to material nonpublic information tied to an event or outcome. In practice, that means a team employee, a league official, or a gaming company executive who tries to trade in a sports-related market could now be flagged at the point of trade entry.
The new measures go beyond employment disclosure. Kalshi also announced a risk-scoring system that evaluates markets based on insider-trading risk, market importance, regulatory concerns, and national-security implications. Markets with elevated manipulation risk could face tighter controls or be rejected from listing altogether. The platform has also embedded whistleblower reporting tools that allow users to flag suspicious trading activity from individual markets.
The enforcement data Kalshi disclosed are striking. The platform has blocked more than 100 potential insider trades, opened over 150 investigations, referred more than 20 cases to law enforcement, and issued five disciplinary actions. Its existing screening already blocks political persons, sports professionals (athletes, coaches, referees, and team and league personnel), and disqualified persons from trading in relevant markets. Kalshi has partnered with surveillance firms Solidus Labs and IC360, the leading integrity provider for professional leagues and the National Collegiate Athletic Association (“NCAA”), to enhance its monitoring capabilities.
This mandate did not come out of nowhere. On March 24, 2026, the White House sent an internal email warning staff against using non-public government information on prediction market platforms. In May 2026, House Oversight Committee Chair James Comer launched a formal probe, sending letters to Kalshi’s CEO seeking details on user verification and suspicious activity monitoring. Executive branch concern, congressional scrutiny, and criminal prosecutions have together produced a compliance environment that is tightening.
The significance for gaming and sports companies cannot be overstated. Platforms are actively collecting and monitoring employer information. Employees of gaming companies, sports leagues, teams, and related entities who trade on prediction markets are more likely than ever to be identified, investigated, and referred to federal authorities.
Practical Steps for Companies
The convergence of the CFTC’s proposed rulemaking, criminal enforcement actions, and platform-level compliance mandates means companies in the gaming, sports, and broader entertainment industries must take concrete steps to mitigate criminal and regulatory exposure—for both the organization and its employees.
Review and update personal trading and gambling policies. Most gaming and sports companies have existing policies governing employees’ personal gambling activities. These policies should be reviewed to determine whether they cover prediction market activity. Given that sports event contracts on Kalshi are functionally identical to traditional sports bets, any policy that restricts employee sports wagering should expressly address event-contract trading. Companies should also consider whether preclearance or reporting requirements, analogous to those used for securities trading, should be extended to cover prediction market activity. General employee training programs should be updated to explain and include prediction markets.
Identify employees with access to MNPI. The categories of information that can give rise to insider trading liability on prediction markets are far broader than in traditional securities enforcement. For gaming and sports companies, material nonpublic information (“MNPI”) can include player injury status, roster decisions, coaching changes, league disciplinary actions, broadcast schedule decisions, merger or acquisition discussions, regulatory submissions, licensing developments, and any internal data that could move the price of an event contract. Companies should map which employees and categories of employees have access to such information and ensure those individuals understand their legal obligations.
Implement affirmative training and certifications. Affected employees should receive specific training on the fact that insider trading law applies to prediction markets with the same force as it applies to securities and commodity markets. Training should address the misappropriation theory, the Eddie Murphy Rule, and the reality that platform-level prohibitions are often broader than federal law. Employees can face discipline and referral to law enforcement even for conduct that may not ultimately result in criminal charges.
Prepare for platform-level disclosure requirements. Kalshi’s employer-disclosure mandate means that employees who trade on the platform may be flagged based on their employer's identity alone. Companies should consider proactive communication to employees about this requirement and its implications. Organizations may also wish to establish reporting mechanisms so that the compliance function is aware if employees are trading on prediction markets.
Establish voluntary self-disclosure protocols. The DOJ’s first-ever nationwide corporate enforcement policy, issued in March 2026, and the CFTC’s analogous policy both offer meaningful cooperation credit, including declinations, for companies that voluntarily disclose misconduct. Early identification and escalation of potential violations are critical. Companies should ensure that internal reporting channels and escalation protocols are in place so that potential issues are identified before they become the subject of a government investigation.
Engage with the CFTC's rulemaking process. As mentioned above, the CFTC’s June 10, 2026, Notice of Proposed Rulemaking that would establish a framework for evaluating whether event contracts involve “gaming” or other enumerated activities and are contrary to the public interest. The proposed rule's definitions and public interest factors will directly shape the boundary between CFTC-regulated prediction markets and state-regulated sports wagering. Gaming companies have a significant stake in this rulemaking and should consider submitting public comments.
Conclusion
Criminal enforcement, platform-level compliance mandates, and regulatory rulemaking concerning the prediction market have fundamentally changed the risk landscape for the gaming and sports industries. Prediction market platforms are actively surveilling for insider trading, collecting employer information, and referring cases to law enforcement at an accelerating pace. Federal prosecutors have shown their willingness to bring criminal charges under multiple theories, and the CFTC has designated this area as a top enforcement priority. The question is not whether enforcement will come to this space; rather, it is whether companies are prepared.
Blank Rome’s Gaming, Sports & Entertainment and White Collar Defense & Investigations practices have been at the forefront of these issues from the start, advising prediction market platforms, gaming operators, sports organizations, and individuals navigating this rapidly evolving enforcement environment. Our team combines deep regulatory knowledge of the gaming industry with extensive experience defending clients in DOJ and CFTC investigations and enforcement actions. We are prepared to assist with compliance program assessments, internal investigations, employee training, regulatory comment submissions, and defense of government inquiries.
For more information, please contact Bradley L. Henry, Stephen D. Schrier, Dennis M.P. Ehling, or another member of Blank Rome’s White Collar Defense & Investigations or Gaming, Sports & Entertainment groups