CFTC Dispute Could Be Cement for Fed Govt Entry

Bill Hornbuckle: Urging the Legal Sports Betting Industry to Navigate the Prediction Market Challenge Wisely to Prevent Federal Intervention

As Bill Hornbuckle, CEO of MGM Resorts, attended a pivotal gaming conference in Atlantic City this week, the legal sports betting landscape is confronting significant challenges that may redefine its future. The stakes are high as the industry approaches a critical juncture, one that could provoke federal oversight.

Just days prior, prediction market platform Kalshi reported an impressive handle of $86 million (£65 million/€75.6 million) during The Masters tournament—approximately three times the trading volume generated for the Super Bowl. However, this surge in activity comes amidst a wave of cease-and-desist orders issued by various states against prediction markets. As the U.S. Commodity Futures Trading Commission (CFTC) prepares for an anticipated roundtable focusing on the regulatory ramifications of sports event contracts, the regulatory environment is becoming increasingly contentious.

Operating without taxation on trading revenues, prediction markets are perceived as a substantial threat to the regulated gaming industry by several lobbyists. During a keynote panel at the East Coast Gaming Congress, Hornbuckle cautioned, “If we don’t handle this correctly, it’s going to be the cement that’s being poured for the federal government to enter the space,” as reported by iGB.

Federalism Versus States’ Rights

It has now been nearly seven years since the U.S. Supreme Court’s groundbreaking decision to overturn PASPA, effectively clearing the path for legal sports betting across the nation. The court ruled that PASPA’s prohibition of state-authorized sports betting infringed upon the anti-commandeering rule embedded in the 10th Amendment. Justice Samuel Alito, writing for the majority, emphasized that the provision “dictates what a state legislature may and may not do,” posing significant questions about federal overreach into state affairs.

Justice Alito’s insights pointed to potential scenarios whereby federal officers could dictate legislative actions within state governance structures, an affront to state sovereignty. The discourse around states’ rights remains critical as various stakeholders grapple with the implications of burgeoning prediction markets.

In a landscape reminiscent of the New Jersey sports betting case, Kalshi claims federal preemption, while Nevada invokes the anti-commandeering doctrine. The Commodity Exchange Act (CEA) is notably devoid of explicit references to sports betting, opening the door for further legal interpretation and conflict.

Disruption of State Gambling Laws?

MGM Resorts operates one of the largest casino portfolios globally, with numerous properties in Nevada, including ten on the Las Vegas Strip. Following the passage of Assembly Bill 98 by former Nevada Governor Fred Balzar in 1931, Nevada set a precedent as the first state to legalize casino gambling in the United States.

Post-PASPA, experts like former UNLV law professor Jennifer Roberts highlighted that sports betting underscores a quintessential states’ rights issue, firmly within the states’ purview under the 10th Amendment. However, the emergence of prediction markets has introduced complexities that some argue threaten established state laws surrounding gambling.

In response to inquiries about the potential implications of the Kalshi case on the federalism versus states’ rights conflict in gambling, Hornbuckle asserted, “It has always been, it needs to be, and continues to be a states’ rights issue.”

Recently, a U.S. district court granted Kalshi a preliminary injunction against the Nevada Gaming Control Board, inhibiting the board’s efforts to classify Kalshi as a platform unlawfully offering sports wagering across state lines.

The AGA’s Stance on Prediction Markets

American Gaming Association (AGA) President Bill Miller, sharing the stage with Hornbuckle, echoed similar sentiments regarding the necessity to deter federal intervention into the prediction market domain. Miller emphasized concerns over maintaining responsible gaming standards amidst the evolution of the gambling landscape.

Kalshi saw considerable activity during the tumultuous 2024 U.S. presidential elections, when trading volumes surpassed $500 million in event contracts—a phenomenon that Miller argued transformed the essence of gambling into mere prediction exercises. He contended that event contracts associated with sports could contravene the Indian Gaming Regulatory Act and the federal Wire Act.

With an emphasis on public trust and responsible gaming, Miller expressed the urgency of ensuring adherence to established regulations, stating, “For those of us who are in charge of ensuring that the public believes we are acting in a responsible manner… it’s hard for me to see this as anything other than a threat.”

Miller further articulated concerns that prediction markets might undermine decades of state regulatory frameworks, raising alarms about their potential to contravene existing state constitutions. He indicated that although some companies may resist the rigorous state licensing processes, these measures are critical for safeguarding market integrity.

Regarding tribal gaming, Miller pointed out that CFTC regulations concerning prediction markets could disrupt negotiations between sovereign entities and the states. This sentiment was echoed by Jim Allen, CEO of Hard Rock International and Seminole Gaming, who acknowledged the need for an environment conducive to investigation and licensing.

As the discussion around the future of sports event contracts unfolds, the CFTC has scheduled a roundtable for April 30, with details on participants yet to be announced. Industry stakeholders remain vigilant, knowing that the outcomes of these discussions could shape the trajectory of gambling regulations for years to come.