ESMA Finds Many Prediction Market Contracts Already Covered by EU Rules

European regulators are warning that many “prediction market” products can fall under existing rules for binary options—even when providers frame them as event contracts rather than financial wagers. In a public statement issued this Friday, the European Securities and Markets Authority (ESMA) reminded firms that regulatory classification depends primarily on contract design, not on marketing language.

Meanwhile, the legal fight over prediction markets is intensifying in the United States, where state gaming authorities and the Commodity Futures Trading Commission (CFTC) disagree over whether these offerings should be treated as gambling or as federally regulated derivatives. The parallel developments highlight how quickly prediction market platforms are colliding with established financial services and gaming frameworks.

Key takeaways

• ESMA says event contracts can already be caught by binary options restrictions if they meet the definition of a financial instrument.
• ESMA emphasizes that the assessment is based on contract characteristics—binary outcomes and fixed payouts are likely to trigger the rules.
• Offering qualifying event contracts to professional or institutional clients may still require authorization under MiFID II, ESMA cautions.
• In the US, a growing split between state regulators and the CFTC continues to drive litigation involving major prediction market platforms.

ESMA’s warning: marketing won’t change regulatory classification

ESMA’s statement clarifies that firms cannot bypass financial regulation by rebranding binary-like products as “event contracts.” The regulator pointed out that contracts meeting the definition of financial instruments are already prohibited from being marketed, distributed, or sold to retail investors under national measures implementing ESMA’s 2018 restrictions on binary options.

Importantly, ESMA says providers should not expect outcomes to hinge on how products are described to the public. Instead, regulators will look at the underlying terms and structure of the contract itself. ESMA noted that event contracts featuring binary outcomes and fixed payouts are particularly likely to qualify as financial instruments subject to the restrictions.

ESMA also underscored that the question of authorization does not disappear when retail customers are excluded. Even when a firm limits access to professional or institutional clients, ESMA says offering event contracts that qualify still requires authorization under the EU’s Markets in Financial Instruments Directive (MiFID II).

According to ESMA, the reminder does not introduce new rules. The agency said it issued the warning after observing increased offerings of event contracts and noting the rapid growth of prediction markets. While ESMA’s intervention is framed as an enforcement clarification, its message is direct: where products resemble binary options in substance, the existing compliance and marketing limits from 2018 can be triggered.

ESMA’s public statement is available via the regulator’s website: ESMA35-243228190-8148 Public Statement on the application of the national product intervention measures on binary options to event contracts.

Why this matters for prediction market operators in Europe

For prediction market platforms operating in the EU, ESMA’s key practical implication is that product design and payoff mechanics are likely to be the deciding factors for compliance. Providers that market contracts as “event exposure” rather than as wagers may still face restrictions if contract terms align with binary option characteristics.

That matters because the boundary between “financial instrument” and “permitted market activity” can be narrow. ESMA’s framing suggests that firms should review how settlement works (binary resolution), how payouts are determined (fixed payouts), and how investor access is structured (retail versus professional/institutional). Where those elements resemble a binary outcome with pre-defined payoff mechanics, the products may fall under measures already implemented by EU member states.

While ESMA did not claim the rules are new, its intervention signals an enforcement posture: firms should expect regulators to treat nomenclature as secondary and to focus on contract substance. In practice, this can affect go-to-market strategy, client eligibility, and authorization planning under MiFID II.

US courts and regulators: states versus the CFTC

Across the Atlantic, prediction markets are caught in a different conflict—one tied to jurisdiction. The ongoing dispute pits state gaming regulators against the CFTC, with each side offering a distinct legal characterization of event contracts.

According to Cointelegraph’s earlier reporting, by March authorities in 11 states had taken legal or regulatory action against platforms including Kalshi and Polymarket. Nevada was reported as the first state to temporarily block Kalshi’s operations, while Arizona brought criminal charges alleging Kalshi was running an illegal gambling business.

In April, the CFTC asserted what it described as “exclusive jurisdiction” over prediction markets. The agency argued that Congress entrusted it with sole authority to regulate commodity derivatives markets, including event contracts, and it said it had sued several states and filed court briefs supporting platforms such as Kalshi. The relevant announcement is posted on the CFTC website: CFTC.gov press release.

Litigation escalates, and pressure grows for federal clarification

As the federal-state standoff continues, the legal momentum has not gone quiet. On June 30, a Massachusetts judge reportedly allowed state authorities to file an amended complaint in an ongoing lawsuit accusing Kalshi’s sports-event contracts of constituting illegal gambling under state law. Earlier coverage also highlighted how the litigation expanded as regulators sought to push the case forward under state gambling statutes.

The dispute has also drawn calls for legislative intervention. Last month, the Indian Gaming Association and American Gaming Association—along with tribal and labor groups—urged lawmakers to amend the CLARITY Act. Their position, as described in Cointelegraph coverage, is that sports-related event contracts on prediction market platforms should be explicitly prohibited, arguing they fall outside the CFTC’s authority and should remain subject to state gambling laws. The push reflects a broader attempt to resolve the uncertainty created by competing interpretations of federal versus state oversight.

Some legal experts expect the outcome to depend on how courts ultimately reconcile the federal CFTC role with state gaming authority. Cointelegraph previously noted that the growing conflict could be decided by the US Supreme Court, underscoring that the issue may reach the highest level rather than being settled through routine regulatory filings.

What to watch next

In Europe, the most immediate signal is ESMA’s insistence that contract structure—not marketing labels—will determine whether event contracts are treated like binary options and whether MiFID II authorization is required. In the US, the next developments likely hinge on how courts handle jurisdiction and whether federal legislation steps in to reduce the split between state enforcement and the CFTC’s claimed authority.