CASE STUDY
Gambling or Derivatives? The U.S. Jurisdictional Battle and Its Implications for Singapore
February 2026
ABSTRACT This case study examines the emerging jurisdictional conflict in the United States over prediction markets—specifically whether sports-linked events contracts constitute gambling, subject to state oversight, or commodity derivatives, subject to oversight by the Commodity Futures Trading Commission (CFTC). It analyses the classificatory logic underpinning each regulatory position, maps the key institutional actors and political economy forces at play, and critically evaluates three thematic risk dimensions: market integrity and insider trading, regulatory arbitrage, and consumer protection. The study concludes by examining Singapore’s regulatory posture toward prediction markets, assessing the prospective impact of the U.S. jurisdictional resolution on Singapore’s financial ecosystem, and offering a forward-looking outlook.
- Introduction and Background
Prediction markets—trading platforms where participants buy and sell contracts whose payoffs are contingent on the outcome of specified future events—have rapidly evolved from niche academic instruments into commercially significant financial products. Platforms such as Kalshi, Polymarket, and Crypto.com now offer contracts tied to electoral outcomes, macroeconomic indicators, and, most controversially, sporting events. As of early 2026, these platforms collectively manage hundreds of millions of dollars in open interest and are actively soliciting retail participation through aggressive marketing campaigns.
The legal architecture governing these instruments in the United States remains unresolved. At the federal level, the Commodity Futures Trading Commission (CFTC), under Chair Mike Selig, has asserted jurisdiction over events contracts as commodity derivatives under the Commodity Exchange Act (CEA). At the state level, gaming regulators in jurisdictions including New Jersey, Nevada, and Utah contend that sports-linked events contracts are functionally indistinguishable from sports wagering and therefore fall within their remit under the Professional and Amateur Sports Protection Act (PASPA) jurisprudence and successor state gambling statutes post-Murphy v. NCAA (2018).
This case study examines the precise classificatory question at the heart of the dispute, maps the institutional and political economy landscape, identifies material risks across three domains, and draws implications for Singapore—a jurisdiction that has consistently positioned itself as a sophisticated financial hub with a conservative approach to gambling. - The Central Classificatory Question
2.1 The Regulatory Taxonomy Problem
Regulatory classification is not merely definitional—it is determinative of legal obligations, permissible activity, and enforcement jurisdiction. The same underlying instrument (a binary contract on whether LeBron James records more than 10 rebounds in a given game) may be simultaneously characterised as a sports wager, a commodity derivative, or a security, depending on the statutory lens applied. Each classification triggers a distinct regulatory regime with different supervisory standards, capital requirements, and consumer protection frameworks.
This is an instance of what legal scholars term ‘regulatory arbitrage by classification’: market participants have strong incentives to frame their products in the manner that attracts the most permissive or commercially favourable regulatory treatment. The prediction market industry’s preference for the CFTC’s derivatives framework over state gambling regulation is economically rational—federal derivatives law generally permits broader participation, lower per-contract fees, and unified national standards, compared to the patchwork of state gaming licences and their associated compliance costs.
2.2 The Case for CFTC Jurisdiction: Derivatives
Proponents of CFTC oversight argue that events contracts satisfy the definitional elements of commodity futures under the CEA. The CEA broadly defines ‘commodity’ to include ‘all other goods and articles’ and grants the CFTC authority over contracts for future delivery whose value is contingent on an underlying index or variable. Events contracts, they argue, are economically equivalent to binary options or cash-settled futures—instruments unambiguously within the CFTC’s remit.
Furthermore, proponents contend that prediction markets serve the canonical social functions of derivatives markets: price discovery and risk transfer. Academic literature, including seminal work by economists at the Iowa Electronic Markets, demonstrates that prediction markets are frequently more accurate forecasters of electoral outcomes than conventional polling. If sports-linked contracts similarly aggregate dispersed private information into publicly observable price signals, their allocative efficiency benefits may rival or exceed those of conventional derivatives.
2.3 The Case for State Gambling Regulation
State gaming regulators and their legislative allies argue that the economic substance of a sports-linked events contract—paying money on a binary outcome contingent on athletic performance—is structurally and practically identical to sports wagering. Post-Murphy v. NCAA, states have exercised broad authority to legalise and regulate sports betting within their borders, investing substantially in regulatory infrastructure, responsible gambling frameworks, and tax revenue frameworks predicated on that authority.
Utah Governor Spencer Cox’s quip—questioning whether the CFTC has authority over a ‘derivative market’ in LeBron James rebounds—encapsulates the state regulators’ position: the CFTC’s claimed jurisdiction is a legal fiction designed to circumvent state gambling law rather than a principled application of commodity law. From a consumer protection standpoint, state gambling regulators further argue that the CFTC lacks the specialist expertise and toolset to address problem gambling, match-fixing, and sports integrity risks that are endemic to sports wagering markets.
Comparative Regulatory Classification Framework
Dimension CFTC (Derivatives) View State (Gambling) View
Legal basis Commodity Exchange Act (federal) State gaming statutes; PASPA succession
Instrument type Binary option / cash-settled future Sports wager / bet
Underlying Economic index / event outcome Athletic performance / sporting result
Market function Price discovery & risk transfer Entertainment wagering
Consumer risk Investment / counterparty risk Problem gambling / addiction
Regulatory expertise Financial markets oversight Sports integrity & gambling harm
Commercial impact Unified national market State-by-state licensing - Key Institutional Actors and Political Economy
3.1 Federal Level
The CFTC under Chair Selig has adopted an assertive posture, filing amicus briefs in support of prediction market operators (notably Crypto.com) in federal litigation and publicly committing to defend its jurisdictional claims. This posture is consistent with the current administration’s broader deregulatory and crypto-friendly orientation. Crypto.com maintains a partnership with Trump Media & Technology Group; Donald Trump Jr. serves as an adviser to Kalshi and holds a position in Polymarket through his venture capital firm. These relationships raise legitimate governance questions about how regulatory postures may be influenced by the financial interests of politically connected figures.
Congressional signals have been mixed. Pennsylvania Senator Dave McCormick has publicly endorsed prediction markets as offering ‘tremendous benefits’ to businesses and consumers, suggesting a potential legislative appetite for federal preemption. However, no comprehensive legislative framework has yet been introduced to resolve the jurisdictional ambiguity through statute.
3.2 State Level
State gaming regulators represent a well-organised and politically powerful constituency with vested interests in preserving their authority. States that have legalised and taxed sports betting under post-Murphy frameworks—including New Jersey, Pennsylvania, and Illinois—have generated substantial tax revenues and are disinclined to cede regulatory control to a federal agency they perceive as lacking domain expertise in gambling harm.
Utah presents a distinctive case: as a state with a total prohibition on gambling, Governor Cox’s objection to the CFTC’s assertion of jurisdiction is not primarily about market share but about normative opposition to gambling in any form. This coalition of economically motivated state regulators and normatively motivated prohibition states creates a broad political opposition to the CFTC’s position.
3.3 Industry Actors
The prediction market industry is itself divided. CME Group’s Chief Executive Terrence Duffy explicitly distanced his firm from sports-linked events contracts during a February 2026 earnings call, stating an unwillingness to have CME Group entangled in legal battles over sports. This retreat by a sophisticated derivatives incumbent reflects rational institutional risk management and signals that the legal uncertainty is itself a material business risk. By contrast, Kalshi, Polymarket, Robinhood, Coinbase, and DraftKings have all entered or signalled entry into the prediction market space, creating a competitive dynamic in which regulatory resolution is commercially urgent. - Risk Analysis: Three Thematic Dimensions
4.1 Market Integrity and the Insider Trading Problem
The most intellectually substantive concern arising from the growth of sports-linked prediction markets is the potential for insider trading. If these markets efficiently aggregate private information—as their proponents claim—they simultaneously create strong economic incentives for actors with access to non-public material information (coaches, physiotherapists, team management, officiating bodies) to trade ahead of public disclosure. Unlike securities markets, which have well-developed insider trading jurisprudence under Section 10(b) of the Securities Exchange Act, neither CFTC commodity law nor state gambling regulation has developed a coherent framework for addressing information asymmetry in events contracts.
The CFTC’s anti-manipulation authority under CEA Section 6(c) and its anti-fraud authority under Section 4b are theoretically applicable, but have not been tested in the context of sports event contracts. State gambling regulators, who have deep experience with match-fixing and sports integrity, are arguably better positioned to detect and prosecute manipulation—but lack jurisdiction over instruments classified as derivatives. This regulatory gap represents a genuine systemic risk, particularly as open interest in sports prediction markets grows and the financial incentive to manipulate outcomes increases proportionately.
4.2 Regulatory Arbitrage and Race to the Bottom
Jurisdictional fragmentation creates structural incentives for regulatory arbitrage. Prediction market operators may structure their instruments to attract CFTC classification—and thereby avoid state gaming licences, responsible gambling mandates, and associated compliance costs—even where the economic substance of their product is closer to sports wagering. This is not merely a theoretical concern: the rapid proliferation of prediction market products from DraftKings (a licensed sports betting operator), Robinhood, and Coinbase suggests that the boundary between prediction markets and sports betting is being strategically managed by operators.
There is an additional cross-border dimension. Polymarket, the largest prediction market platform by volume, operates offshore and accepts non-U.S. participants, effectively operating outside the CFTC’s jurisdictional reach while servicing a global user base. This offshore structure creates regulatory arbitrage opportunities that are structurally analogous to those exploited by offshore sports betting platforms prior to PASPA’s repeal—and suggests that the jurisdictional contest between the CFTC and state gaming regulators may be of limited practical consequence if the most significant market activity migrates offshore.
4.3 Consumer Protection and Gambling Harm
Governor Cox’s assertion that prediction markets are ‘destroying the lives of families and countless Americans, especially young men’ may be rhetorically charged, but it points to a genuine evidence base linking binary-outcome financial products with problem gambling behaviours. Research in behavioural economics and gambling studies consistently finds that binary, high-frequency, low-stake wagers are particularly associated with problem gambling in young male demographics—precisely the demographic that prediction market operators are most actively targeting through marketing campaigns featuring professional athletes and social media influencers.
The CFTC’s consumer protection framework, designed for sophisticated counterparties in commodity markets, is materially less protective than state gambling regulation, which typically mandates responsible gambling disclosures, self-exclusion programmes, and limits on advertising to vulnerable populations. A regulatory outcome that entrenches CFTC jurisdiction without supplementary consumer protection mandates may therefore produce significant social welfare costs even if it promotes market efficiency. - Singapore: Regulatory Posture and Comparative Context
5.1 Singapore’s Existing Framework
Singapore maintains a distinctively dualistic approach to gambling and financial derivatives. The Monetary Authority of Singapore (MAS) regulates financial instruments—including futures, options, and other derivatives—under the Securities and Futures Act 2001 (SFA), applying rigorous licensing, conduct, and capital requirements consistent with international standards. The Gambling Regulatory Authority (GRA), established in 2022 as a successor to the Casino Regulatory Authority and the Singapore Totalisator Board’s regulatory functions, administers the Remote Gambling Act 2014 (RGA) and its subordinate regulations, which prohibit remote gambling by Singapore residents except through exempted operators.
Under the RGA, an ‘exempt operator’ must satisfy stringent criteria relating to responsible gambling, anti-money laundering, and sporting integrity. Singapore Pools and Singapore Turf Club are the only currently exempted operators, maintaining a de facto duopoly. Offshore prediction market platforms—Kalshi, Polymarket, Crypto.com—do not hold GRA exemptions and are therefore inaccessible to Singapore residents for gambling purposes, though they may be accessible through technical workarounds.
The classificatory question that has generated such controversy in the United States—gambling versus derivatives—has not yet been formally adjudicated in Singapore. The MAS has not issued specific guidance on events contracts, and the GRA has not publicly addressed the regulatory status of binary event contracts tied to sporting outcomes. This regulatory silence creates meaningful ambiguity for market participants contemplating Singapore-based prediction market ventures.
5.2 The Classificatory Problem in Singapore’s Legal Context
Singapore’s legal framework does not offer a clean resolution to the gambling-versus-derivatives question. The SFA defines ‘futures contracts’ broadly, and a binary event contract on a sporting outcome could plausibly fall within its scope if construed as a contract for differences. However, the RGA’s definition of ‘gambling’ is also potentially applicable—particularly for contracts where the participant’s return is contingent on a sporting outcome and there is no plausible risk-hedging purpose.
Singapore courts have not definitively addressed this classificatory question, and the MAS and GRA have not issued joint guidance. In the absence of regulatory clarity, a prediction market operator seeking to serve Singapore residents would face significant legal uncertainty—a situation likely to deter institutional entry and channel activity offshore or into regulatory grey zones. - Impact Assessment: Implications for Singapore
6.1 Regulatory Precedent Effects
The resolution of the U.S. jurisdictional contest will generate significant regulatory precedent with extraterritorial relevance. If the CFTC prevails and events contracts are definitively characterised as commodity derivatives under U.S. law, this classification may influence MAS’s analytical framework in determining whether analogous instruments fall under the SFA’s derivatives provisions. Singapore has historically aligned its financial regulatory framework closely with international standards and peer jurisdictions, and a clear U.S. precedent favouring the derivatives characterisation could accelerate a similar determination by MAS—potentially opening the door to regulated prediction market activity in Singapore’s financial markets.
Conversely, if U.S. federal courts determine that sports-linked events contracts are functionally gambling—either upholding state jurisdiction or finding that CFTC authority does not extend to such instruments—this would provide strong persuasive authority for the GRA to assert that offshore platforms offering Singapore residents sports prediction contracts are in breach of the RGA’s prohibition on unlicensed remote gambling services, potentially triggering enforcement action and blocking measures analogous to those applied to unlicensed offshore sports betting sites.
6.2 Market Development Opportunities and Risks
Singapore’s ambition to position itself as a leading financial centre for innovative financial products creates a structural tension with its conservative gambling policy. Prediction markets, if classified as derivatives, represent a category of innovative financial instruments that could attract capital, trading activity, and technology investment to Singapore’s financial markets. MAS’s regulatory sandbox framework—the FinTech Regulatory Sandbox—could in principle accommodate prediction market operators seeking to test compliant business models, as it has for other novel financial products.
However, the reputational and social policy risks of being perceived as a permissive jurisdiction for instruments that closely resemble sports betting are significant. Singapore’s government has consistently expressed concern about gambling harm, and the political economy of permitting prediction markets—particularly those linked to sporting events—would require careful management of public opinion and parliamentary scrutiny. The GRA and MAS would need to develop coordinated inter-agency guidance that resolves the classificatory ambiguity in a manner consistent with both financial innovation objectives and responsible gambling commitments.
6.3 Cross-Border Regulatory Coordination
The U.S. dispute also highlights the inadequacy of existing international regulatory coordination frameworks for prediction markets. The International Organization of Securities Commissions (IOSCO) and the Financial Stability Board (FSB) have not developed specific guidance on events contracts, leaving jurisdictions to develop idiosyncratic national frameworks. Singapore, as an active participant in both bodies, is well-positioned to advocate for international coordination—potentially through the development of a common classificatory framework that would reduce regulatory arbitrage opportunities and promote consistent consumer protection standards across jurisdictions.
Singapore’s experience with cross-border regulation of digital asset markets—where MAS has coordinated actively with peer regulators including the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and the European Securities and Markets Authority—suggests a template for analogous coordination in the prediction market space. A bilateral or multilateral regulatory dialogue between MAS, the GRA, the CFTC, and peer state gambling regulators could produce a more durable resolution than domestic litigation alone. - Forward-Looking Outlook
7.1 Near-Term (2026–2027): Legal Resolution and Market Consolidation
In the near term, the U.S. jurisdictional dispute is likely to be resolved through federal litigation rather than legislation, given the current Congress’s limited bandwidth for financial regulatory reform. Federal courts will be required to determine whether the CFTC’s authority under the CEA extends to sports-linked events contracts, and whether state gambling statutes are preempted by federal commodities law. This litigation will likely proceed over 12–24 months, during which market participants will operate under significant legal uncertainty.
In Singapore, MAS and GRA are expected to maintain regulatory silence on prediction markets during this period, monitoring U.S. and European developments before committing to a domestic framework. Offshore platforms will continue to serve Singapore residents through technical workarounds, creating a de facto grey market that regulators may eventually be compelled to address.
7.2 Medium-Term (2027–2029): Potential Regulatory Frameworks
Depending on the outcome of U.S. litigation, Singapore may move toward one of three regulatory outcomes. First, a ‘derivatives pathway’ in which MAS classifies compliant events contracts under the SFA, requiring operators to obtain Capital Markets Services licences and comply with conduct-of-business rules—a framework that would permit regulated prediction market activity while excluding sports-linked contracts that fail to demonstrate a plausible financial risk-management purpose. Second, a ‘gambling pathway’ in which the GRA extends its exempt operator framework to include prediction market platforms, subject to the same responsible gambling and integrity requirements applied to Singapore Pools. Third, a ‘joint framework’ developed collaboratively between MAS and GRA, modelled on the U.K.’s experience with spread betting—a hybrid instrument regulated by the Financial Conduct Authority—that acknowledges the dual nature of events contracts and applies combined financial and gambling regulatory requirements.
7.3 Long-Term (2030 and Beyond): Global Market Structure
The long-term trajectory of prediction markets will be shaped by the interaction of regulatory frameworks, technological development, and market structure evolution. If international regulatory coordination produces a coherent global framework for events contracts, Singapore is well-positioned to serve as a regional hub for compliant prediction market activity, leveraging its established financial infrastructure, legal system, and connectivity to Southeast Asian markets where prediction market demand is high but regulatory frameworks are nascent.
If coordination fails and regulatory fragmentation persists, the most significant prediction market activity is likely to migrate to offshore jurisdictions with permissive regulatory frameworks—replicating the pattern observed in offshore sports betting and cryptocurrency exchanges. Singapore would then face the policy choice of whether to tighten enforcement against offshore platforms or to liberalise its own framework to capture activity that would otherwise occur outside its regulatory perimeter. - Conclusion
The jurisdictional contest between the CFTC and state gambling regulators over prediction markets is not merely a domestic U.S. legal dispute. It represents a fundamental unresolved question about the classification of a novel category of financial instrument—one that combines the economic structure of binary derivatives with the subject matter of sports wagering in a manner that existing regulatory frameworks were not designed to address.
The outcome of this dispute will generate significant regulatory precedent with extraterritorial implications, including for Singapore. Singapore’s dual regulatory architecture—MAS for financial instruments, GRA for gambling—mirrors, in structural terms, the U.S. federal-state divide that has produced the current jurisdictional conflict. The resolution of that conflict will therefore provide valuable analytical and normative inputs for Singapore’s own policymakers as they determine how to regulate prediction markets in a manner consistent with the city-state’s dual objectives of financial innovation and responsible gambling.
What is clear is that regulatory inaction is not a stable equilibrium. The rapid growth of prediction markets, their increasing retail penetration, and the real risks of insider trading, regulatory arbitrage, and gambling harm demand proactive regulatory engagement. For Singapore, the most prudent course is to develop a coordinated inter-agency framework now—informed by U.S. developments, European precedents, and its own regulatory values—rather than waiting for a domestic controversy to force reactive policymaking.
References and Further Reading
Arrow, K.J., et al. (2008). ‘The Promise of Prediction Markets.’ Science, 320(5878), 877–878.
Berg, J., Forsythe, R., Nelson, F., & Rietz, T. (2008). ‘Results from a Dozen Years of Election Futures Markets Research.’ In C. Plott & V. Smith (Eds.), Handbook of Experimental Economics Results. Elsevier.
Commodity Exchange Act, 7 U.S.C. §§ 1–27f.
Gambling Regulatory Authority of Singapore. (2022). Annual Report 2021/2022. GRA.
Kim, C. (2026, February 17). ‘A Legal Battle Over Prediction Markets Is Brewing. The CFTC Fired It Up Today.’ Investopedia.
Monetary Authority of Singapore. (2023). ‘MAS FinTech Regulatory Sandbox Guidelines.’ MAS.
Murphy v. National Collegiate Athletic Association, 584 U.S. 453 (2018).
Remote Gambling Act 2014 (Singapore), No. 34 of 2014.
Securities and Futures Act 2001 (Singapore), Cap. 289.
Sunstein, C.R. (2006). ‘Misfearing: A Reply.’ Harvard Law Review, 119(4), 1110–1125.
Wolfers, J., & Zitzewitz, E. (2004). ‘Prediction Markets.’ Journal of Economic Perspectives, 18(2), 107–126.