Prediction market comments show divided industry viewpoints

The Commodity Futures Trading Commission (CFTC) is preparing to convene a roundtable focusing on prediction markets, a burgeoning segment of the gambling landscape that has sparked significant debate within the industry. The comments submitted ahead of this discussion provide valuable insights into the current climate surrounding these markets.

On February 26, the CFTC released a compilation of comments received regarding the upcoming roundtable. This meeting, first announced on February 5, is scheduled to take place approximately 45 days after the closing of the comment period, with April 30 tentatively marked as the date.

Central to the roundtable’s agenda is the exploration of prediction markets and their expansion into sports betting contracts. These markets, akin to traditional futures exchanges, permit traders to buy contracts that are tied to the outcomes of various events. Platforms such as Kalshi, Polymarket, and Crypto.com facilitate trades between these contracts and generate revenue through trading commissions. Historically, these platforms navigated regulatory gray areas, but Kalshi’s recent legal victories against the CFTC have paved the way for a more explicit federal endorsement of their operations.

Prior to the November 2022 U.S. elections, these platforms saw substantial investments in election-related contracts, amassing billions of dollars in trades. However, the real turning point came in January when these platforms extended their offerings to include sports contracts, now featuring bets on events such as the Super Bowl and other championship outcomes.

Such developments have reoriented the conversation around prediction markets, eliciting heightened concerns from the regulated gambling sector. Currently, these platforms operate federally legal within all 50 states, avoiding the stringent gaming taxes and responsible gaming requirements that regulatory bodies impose on traditional operators. As a result, they pose a new challenge to both tribal and commercial gaming stakeholders.

Tribal Consensus: A Firm Rejection of Sports Contracts

The CFTC received 19 submissions, with a majority—11—coming from tribal entities. These submissions represented a rare consensus among diverse tribes, showcasing a unified stance against the introduction of sports event contracts. The submissions echoed significant concerns, namely the infringement on tribal sovereignty, potential violations of the Indian Gaming Regulatory Act (IGRA), and detrimental impacts on tribal gaming revenues.

A common theme in several submissions, including one by the Indian Gaming Association (IGA), articulated the risks posed by prediction markets:

“Allowing Sports Contracts to be listed and traded would impede the sovereign rights of tribes and states to regulate gaming within their respective jurisdictions—a right consistently upheld by U.S. courts. Furthermore, permitting these markets could undermine the value of negotiated agreements between tribes and states, which have historically allowed tribes to contribute billions to state revenues in exchange for exclusivity in sports betting.”

Prediction Markets: A Unique Challenge for Native Nations

For tribal entities, sports contracts epitomize a growing array of threats. Recent legislative efforts, such as the IGA’s opposition to sweepstakes sites, highlight escalating tensions. In California, tribal groups initiated legal action against card rooms, while other states—like New York and Oklahoma—face strained compact negotiations.

Prediction markets, particularly those involving sports contracts, pose a unique and pervasive challenge. Their national scope threatens treasured tribal gambling markets in states such as California, Minnesota, Oklahoma, and Florida.

“The discussions at the CFTC signify an unprecedented risk,” stated tribal gaming lawyer Scott Crowell during the Western Indian Gaming Conference on February 27. “It represents a federal endorsement of these markets, making it difficult for tribes to contest predatory practices elsewhere.”

Noticeable Absence of Industry Perspectives

The overwhelming majority of tribal submissions was notable, yet the limited response from the broader industry raised eyebrows. This absence could suggest a tactical approach, with members potentially aligning behind the American Gaming Association’s (AGA) lead.

Within its submission, the AGA expressed interest in contributing to the upcoming discussion, emphasizing that sports event contracts are fraught with public policy challenges. The AGA articulated concerns regarding the federal proliferation of these markets, stating:

“While the AGA has not opposed non-sports related contracts, we urge caution regarding the recent self-certification of what essentially are sports betting futures that are accessible to consumers nationwide.”

Conversely, there may be a strategic evaluation of potential market opportunities. Should prediction markets remain viable, current operators may explore launching similar products. DraftKings, for instance, has been actively investigating innovative options, including its recent Sportsbook + subscription service aimed at enhancing parlay betting in New York.

During a fourth-quarter earnings call on February 14, DraftKings CEO Jason Robins adopted a neutral tone regarding prediction markets, noting, “I don’t see these markets as a threat; instead, they expand the overall market for consumers interested in such products, and that is beneficial.”

CFG Submission: A Distinct Voice in the Discussion

One of the more prominent submissions came from the Campaign for Fairer Gambling (CFG), a group founded by industry veteran Derek Webb in 2012. With a focus on responsible gaming and harm reduction, CFG has recently redirected its efforts toward the U.S. market after a four-year hiatus.

In its comments, CFG appeared to advocate for prediction markets, arguing for their legitimacy in contrast to concerns about the regulated gambling industry. The submission stated:

“If markets related to politics and cultural events are permissible, there is no justifiable argument against the validity of sports event markets.”

The CFG has raised issues regarding legal sportsbooks’ practices, including bet limits that deter participation. It argued that prediction markets “should encourage inclusivity” with potentially more accurate pricing than state-regulated options. The CFG anticipates that such markets would not facilitate prop bets or in-play wagers tied to integrity issues prevalent in current sports betting models.

“CFG advocates that gambling should be permitted, but not aggressively promoted,” the group remarked. “While we express caution toward expanded state online gambling due to social repercussions, we recognize prediction markets as unique and do not share those same concerns.”

The CFG has chosen not to provide further comments beyond its formal submission.