CFTC call with tribes largely a mystery

Gaming tribe leaders will soon engage with the Commodity Futures Trading Commission (CFTC) in a virtual conversation focused on prediction market issues. This pivotal meeting, scheduled for Thursday, will be led by Caroline Pham, the acting chair of the CFTC. The conversation is anticipated to revolve around sports event contracts within prediction markets—a subject that remains unclear, even for those directly involved.

In preparation for this significant call, Victor Rocha and Jason Giles from the Indian Gaming Association hosted a recent webinar featuring prominent tribal attorneys Bradley Bledsoe Downes and Joseph Webster, along with Rodney Butler, the chair of the Mashantucket Pequot Tribal Nation in Connecticut, one of the largest and most influential gaming tribes in the U.S.

The overarching sentiment among participants is uncertainty regarding what will be discussed. The previous CFTC event, set for April 30 in Washington, D.C., was mysteriously canceled without any public explanation. The announcement of this new tribal-only meeting took many by surprise, as reported earlier this month by InGame.

“Information has been minimal, primarily just an invitation,” Downes expressed. “It feels more like a courtesy than a substantive engagement.”

### Butler: ‘They’re Violating Our Agreements’

Rodney Butler’s comments unveiled the considerable concerns regarding prediction markets, given his stature as a leading tribal figure. His tribe, together with the Mohegan Tribe, maintains a compact with Connecticut state, ensuring gaming exclusivity.

These agreements have yielded billions in revenue for the state, yet they face risks if prediction markets proliferate unchecked. “It’s straightforward: They are violating our agreements, and circumventing the government-to-government relationship we’ve diligently cultivated,” Butler stated.

So far, Connecticut has refrained from issuing cease-and-desist orders or pursuing litigation against prediction markets like Kalshi and Crypto.com. Butler mentioned that the state’s attorney general and Department of Consumer Protection are actively examining the situation and are expected to provide insights.

“We have a lucrative exclusivity agreement in Connecticut, a model that many tribes across the nation share. The implications of this trend could be immediate and far-reaching,” he added.

### Tallying the Scoreboard

Attorneys Downes and Webster reviewed ongoing legal actions concerning prediction markets, noting that Kalshi is currently contending with three lawsuits in Nevada, New Jersey, and Maryland. While Kalshi has secured preliminary injunctions in the former two states, both face appeals, and the Maryland case is just beginning to unfold.

Downes emphasized Maryland’s case as perhaps the most comprehensive legal argument thus far, potentially strengthened by precedent from other state rulings.

“Could Maryland act as a bulwark against Kalshi’s forward momentum? The crucial factor may be CFTC Rule 40.11(a)(1), which explicitly prohibits event contracts that involve ‘gaming’—a classification that Kalshi asserts applies to its sports contracts,” he noted.

In Nevada and New Jersey, commercial interests have begun to involve themselves in these legal disputes. The Nevada Resort Association has petitioned to intervene in its state’s appeal, while the Casino Association of New Jersey filed an amicus brief supporting its state’s position. This shift indicates growing concern and involvement from additional stakeholders.

Webster reiterated the absence of tribal representation in these legal matters, including amicus briefs. He pointed out that the current rulings have only granted preliminary injunctions without full judicial determinations. “No court has yet evaluated the merits of these arguments,” he emphasized.

### Spotlight on the CFTC

The webinar featured an analysis of the CFTC, a federal agency now garnering heightened attention due to the emergence of prediction markets. Historically, the CFTC has focused on commodities and derivatives, with a reputation for overseeing niche sectors predominantly tied to agriculture. Rocha humorously referred to it as the “orange juice police.”

However, the prospect of the CFTC morphing into a national regulator for sports betting via prediction markets raises concerns. The commission previously hesitated to engage with these emerging markets, especially under the Biden administration. Their appeal regarding election betting was withdrawn this year following the prior administration.

“Nobody anticipated, pun intended, that we would witness sports betting masquerading as prediction markets,” Downes remarked.

He also addressed the self-certification process allowing prediction markets to operate without advance CFTC approval, resulting in a “post hoc” regulatory environment that he believes is being exploited by companies like Kalshi.

Amidst administrative changes, the CFTC is experiencing significant personnel turnover, including the impending departure of Pham once her successor, Brian Quintenz, is confirmed. With only one commissioner likely to remain in the coming months, a full commission with five members might not be realized.

### Kalshi Not Hiding

As the situation develops, Kalshi has remained highly visible. Recently, California gubernatorial candidate Kyle Langford posted on social media about purchasing $100 in contracts betting on his own election. This sparked debates about integrity and potential election interference.

In response, a Kalshi representative indicated via Discord, “We are aware of the situation involving a candidate trading on our market and are ensuring compliance. As mandated for all CFTC-regulated exchanges, Kalshi conducts thorough investigations into all potential violations of our rules.”

Kalshi’s CEO, Tarek Mansour, made headlines recently by suggesting at a New York conference that “most mainstream financial brokers will soon offer Kalshi markets within their apps,” promoting the notion that sports contracts could become legitimate financial instruments.

An unusual highlight occurred when Kalshi announced a partnership with Elon Musk’s xAI, only to retract the announcement within the same day, exemplifying the unpredictable nature of the industry. “Elon Musk has tirelessly championed truth, inspiring me every step of the way. Our partnership aims to catapult prediction markets into the mainstream,” Mansour declared in a since-deleted message.

This evolving dialogue illustrates the complex landscape of the gambling industry, where traditional frameworks are being tested by innovative market models. The intersections of legality, tribal rights, and emerging technologies will undoubtedly shape the future of gaming in the United States.