One of the numerous open questions that will shape the future and legality of sports event contracts within derivatives markets, and their place alongside traditional, state-sanctioned U.S. sports betting, hinges on the applicability — or not — of the Federal Wire Act of 1961.
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The Wire Act prohibits anyone “engaged in the business of betting or wagering” from “knowingly using a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest.”
Well that seems like a problem. But not so fast.
“The rub here is that, if [sports event contracts] are legitimate hedging transactions under the Commodity Exchange Act (CEA), they do not involve ‘betting or wagering’ and, thus, do not trigger the Wire Act (or any other gambling laws),” said Dennis M. P. Ehling, a business litigation partner specializing in gaming law at Blank Rome.
“There is, I would say, quite some debate as to whether Congress intended to have any kind of what has traditionally been considered gambling that takes place in casinos — where the player has no underlying financial interest in the outcome of the game other than their stake in the e.g. Kalshi transaction — treated as not gambling because it is done by a CFTC-registered market operator. But if it is a hedging transaction, there is a strong argument that it is not a bet or wager.”
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"Why the Federal Wire Act May Be No Threat to Prediction Markets at All," by Brett Smiley was published in InGame on April 23, 2025.
