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There’s been a major twist in the fate of sports prediction markets in the U.S., as the Commodity Futures Trading Commission (CFTC) has unexpectedly cancelled its highly anticipated roundtable on the future of this rapidly growing sector.
The roundtable was set to discuss and clarify whether these sports contracts were in violation of state gaming laws. The commission had told Sportico earlier this month that the event would be structured as a “forum or hearing” where different stakeholders would have their panels and share opinions on the matter.
Last Friday, it was confirmed that the event, which was supposed to be held on the 30th of April, had been cancelled, with the CFTC yet to release any updates on whether it would be rescheduled or permanently shelved.
Over a dozen stakeholders had submitted feedback to the commission ahead of the planned roundtable, and reasons for the delay have yet to be released as legal chaos continues to ravage the sector.
Legal Battles Continue
The last two months have seen several state gambling regulators send out cease-and-desist letters to sports prediction platforms, particularly Kalshi, Robinhood, and Crypto.com. Kalshi has responded aggressively by suing regulators in key states like Nevada and New Jersey. It secured a major win in Nevada, with a district court issuing a preliminary injunction that allows the company to continue operating in the state.
“To the extent the States or other interested parties object to Kalshi offering sports and election event contracts, they must take that up with the [Commodity Futures Trading Commission] and Congress,” a federal judge in Nevada wrote earlier this month. “Such policy issues are beyond the jurisdiction of this court.”
This ruling matches Kalshi’s stance, with the company stating that they are under the regulations of the CFTC.
Sports prediction platforms offer event contracts that make it possible for users to make de facto sports wagers. For example, a person could buy ‘yes’ contract in the Warriors defeating the Nuggets in their NBA playoff series.
This puts prediction markets in direct competition with regulated sports betting platforms like DraftKings, FanDuel, and BetMGM. It has also led to them being at odds with state regulators, who have decided to allow sports betting only on their own terms.
Most regulators have expressed their desire to ban these markets, with Tennessee writing to the CFTC and seeking federal action.
“We believe that these sports event contracts are Wagers under the [Tennessee Sports Gaming Act] and are being offered in violation of Tennessee law and regulations,” wrote Mary Beth Thomas, the executive director of the Tennessee Sports Wagering Council, in the letter.
“The sports event contracts give consumers the option to purchase contracts corresponding to one of two outcomes of an event. In a sporting event context, a consumer is purchasing a contract that reflects which team they believe will win or lose the matchup. The ultimate result is money being won or lost based on the outcome of a game.”
CFTC Hoping to Avoid Regulation by Enforcement
Kalshi has asserted that the CFTC holds exclusive authority over these markets, a power granted by Congress through the Commodity Exchange Act. In light of ongoing legal battles, including Kalshi’s lawsuits against state regulators, the CFTC’s approach is becoming increasingly.
CFTC Acting Chair Caroline Pham, who took the helm this year, has made it clear that her goal is to avoid “regulation by enforcement.” Instead, she advocates for a more comprehensive regulatory framework that would promote the growth of prediction markets while addressing the myriad challenges involved.
In a memo released in February, the CFTC highlighted several hurdles it faces in crafting balanced regulations, including the Commerce Clause, state regulatory systems, and issues of tribal sovereignty.
With the roundtable scrapped, stakeholders, including tribal groups and Major League Baseball, are left without a clearer stance from the agency, which is crucial for understanding the future of sports futures trading.
Source: YogoNet
