With the 2025 NFL season recently kicking off, I thought the time was right to examine event contracts utilizing a somewhat modified 6 Ws and 1 H model. Given the complexity of this topic, I thought it would be best to try to simplify it as much as possible by using this model to try not to spill more proverbial ink than necessary.
What
Event contracts are fully collateralized (meaning 100% of the contract needs to be paid up front – there is no performance bond element), binary (only 2 outcomes – yes or no), exchange–traded futures contracts listed with a pre-defined outcome as the contract spec.
For example, “Will it Rain in Chicago Today?” could be listed as an event contract, with a price of $.70 suggesting there’s a 70% chance of that event occurring before the contract expires. If a trader goes long the contract at .70, they can sell and exit the trade profitably if the market rises above .70, or hold on to the contract to capture the pre-defined outcome (usually $.30 if the cap is $1.00) if it rains in Chicago before the contract expires and settles. If the contract price falls below .70 and the trader gets flat, they will have lost money on the trade even if the trade ultimately expires in the money. Because it’s fully collateralized, the trader needs to post 100% of the cost of the contract at the time of the first transaction – there is currently no leverage on event contracts.
Who
The North American Derivatives Exchange (NADEX), originally known as HedgeStreet, launched in 2004 as the first US-based retail-focused online binary options exchange. It is a CFTC-licensed exchange that operates today under the ownership of Crypto.com (more on them later) and is primarily focused on markets in forex, commodities, crypto, and stock indices.
Kalshi is a CFTC-licensed exchange that went live in 2021 and offers a wide range of markets, including contracts on standard financial indicators to contracts on popular culture and the film industry.
CME Group is a CFTC-regulated exchange that has listed event contracts periodically since 2022. Most recently, it announced a partnership with FanDuel to list and manage a series of event contracts on FanDuel’s website and app.
Robinhood is an equity and equity options trading platform that partnered with Kalshi to offer Kalshi’s contracts on their app.
Underdog is a gaming site that recently announced a collaboration with Crypto.com (utilizing their Nadex exchange) to offer sports prediction markets (i.e., event contracts) in the sixteen states where sports betting is not yet available.
Polymarket is a decentralized, blockchain-based prediction market platform launched in 2020 that enables users to speculate on the outcomes of real-world events using cryptocurrency. Previously, the CFTC had barred Polymarket from onboarding US customers, but it has recently issued a no-action letter effectively allowing Polymarket back into the US after it purchased a CFTC-registered exchange called QCX.
Where
California, Maryland, Nevada, New Jersey, Ohio, & Wisconsin.
Those are the states (or the states where the Native American tribes are located) currently suing or taking legal or regulatory action against Kalshi. More on this below, but this is directly related to Kalshi’s decision in early 2024 to launch sports prediction markets on a nationwide basis, creating a direct threat to states’ oversight and control of sports gaming.
Why
In late 2024, just in time for the Super Bowl, and around the same time as the turnover of the presidential administration, Kalshi self-certified a number of contracts on major sporting events and began marketing itself as a nationwide sports gaming site, in direct competition with state and tribal-licensed gaming sites like FanDuel and DraftKings.
Kalshi cited the preeminence of the federal jurisdiction that CFTC registration provides, and has been willingly engaging in legal disputes with all comers (including states and tribal networks that run many casinos) since.
Before launching the sports contracts, Kalshi gained notoriety for listing various election markets going into the 2024 election and had its model verified by accurately predicting the outcomes of the markets it listed.
Why Now
As a hungry startup with evidently deep pockets but a definite timeline to prove itself, Kalshi took advantage of the opportunity provided by the turnover of the presidential administration and a previous win against the CFTC in court (more on that below) to create an opportunity.
The CFTC is traditionally made up of five commissioners, with the party in power claiming the majority of the seats on the commission and one commissioner from the majority appointed as the chairman of the commission. When the administration turned over in January, as is customary, the Democratic commissioners then in the majority resigned or indicated their interest in stepping down over the course of the first few months of the new administration, as it lined up replacements for the incoming Republican majority. Unfortunately, for a multitude of reasons, the replacement commissioners have yet to be nominated, and the current CFTC is down to one commissioner acting as chairman. Given this, the commission has been unwilling to opine on or create policy without a quorum.
Because they don’t want to lose out on potential revenue, or see it go to a competitor that can operate where they cannot, various gaming sites, including FanDuel and DraftKings, while supporting the state gaming commissions, have also been pursuing their own access to CFTC jurisdiction, with FanDuel partnering with the CME Group and DraftKings purported as buying Railbird, another CFTC-registered exchange.
How
This is where things get complicated, and each side can point to specific precedents to defend their position and poke holes in the opposition’s argument.
In 2012, the CFTC blocked NADEX from listing self-certified political event contracts by specifically citing the contracts as involving gaming and being contrary to the public interest.
In 2022, the CFTC fined Polymarket and ordered it to wind down its US operations for operating as an off-exchange platform for offering event-based contracts without registering as a DCM or SEF.
Later in 2022, the CFTC also withdrew a no-action letter it had previously issued to PredictIt, which had allowed it to operate a political futures market in the US without registering as a DCM.
In 2023, Kalshi self-certified event contracts related to the upcoming election season. In a 3-2 vote, the CFTC determined that the election-focused contracts involved gaming and prohibited them. To make a long story short, Kalshi took the CFTC to court and won, with the district court siding with Kalshi.
Fast forward to late 2024, and Kalshi used the momentum generated by the election markets and the tailwind created by their court win to launch sports prediction markets.
Kalshi’s supporters will argue that the precedent for extending their markets into sports and politics dates back to the Commodity Futures Modernization Act of 2000, which eliminated the requirement that financial products serve an economic purpose or the public interest.
Similarly, the other side would argue that Section 5c(c)(5)(C) of the Commodity Exchange Act (added as part of the Dodd-Frank legislation) specifically prohibits the types of contracts Kalshi is self-certifying.
The states and Native American Tribes suing Kalshi are effectively arguing that the prediction markets they are offering constitute gambling in another name, and states and tribes have the exclusive right to regulate gaming.
What’s Next
Back in 2024, the CFTC issued a rulemaking proposal to clarify and define event contracts, but it was never enacted.
On the legal front, after suffering some early defeats, the states have gained some traction in their cases against Kalshi, with Maryland prevailing in state court. This win gives the states and tribes still fighting Kalshi some momentum.
However, while these initiatives either collect dust (in the case of the CFTC proposal) or wind their way through the courts, Kalshi and its competitors continue to grow interest and market share in the space.
For example, just after the first weekend of the NFL season had completed, Tarek Mansour, the CEO of Kalshi, posted on LinkedIn that Kalshi had done $441 million in volume in four days – the equivalent of their volume during the entire US election cycle last year.
Additionally, just looking at the list of who’s entering the space via partnerships and acquisitions (the Who list above) indicates that people are preparing for these markets to be around for the long term.
Personally, I look at it less as a paradigm shift and more as a natural evolution, and if it brings more eyes to our markets and more exchanges to the table, so much the better!