Bill Miller, the president and CEO of the American Gaming Association (AGA), has called for prediction markets to “answer to state regulators,” in an opinion piece published on Kansas.com.
Key Takeaways
- President and CEO of the AGA has called for prediction markets to “answer to state regulators.”
- The exchange-based platforms see participants buy and sell shares in the outcome of events.
- Crackdown on prediction markets looks unlikely to happen soon, given recent comments by Trump’s CFTC Nominee.
In the article, Miller argues that prediction markets risk undermining the state regulatory system in Kansas by offering gambling products under the auspices of Commodity Futures Trading Commission (CFTC) regulation.
Prediction markets are exchange-based platforms where participants buy and sell shares in the possible outcomes of events. They have, so far, been able to swerve some of the strict regulations that apply to traditional forms of gambling by positioning their offer in a slightly different way.
Miller claims that while prediction markets call themselves financial investing, they are “effectively gambling platforms with little oversight and regulation.” He goes on to explain, “If you wager money on whether the Chiefs will win on any given Sunday, that’s a bet. Whether you call it a derivative or an event contract, the intent and effect are the same.”
Nevada, New Jersey, Ohio and Illinois hit back at prediction markets
Earlier this year, regulators in Nevada, New Jersey, Ohio, and Illinois began attempting to shut down trading of federally regulated sports event contracts facilitated by the likes of Kalshi, Robinhood and Crypto.com. All three states sent cease-and-desist letters to Kalshi regarding alleged unauthorized sports wagering.
The states took action when it became clear that the CFTC would not stop the contracts. While the CFTC hasn’t explicitly stated that it is in favor of the continuation of sports-outcome markets, it hasn’t asked Kalshi to stop offering them, either.
Kalshi filed lawsuits against Nevada and New Jersey in response, claiming the cease-and-desist letters violated the Commodity Exchange Act.
In April, Kalshi won a preliminary restraining order and temporary injunction against the New Jersey Division of Gaming Enforcement (NJDGE). It was the second time a federal court had sided with Kalshi (after the U.S. District Court for the District of Nevada).
Prediction market crackdown by CFTC nominee looking unlikely
Last month, prediction markets received more positive news as Brian Quintenz, Trump’s CFTC Nominee, made remarks that were interpreted as favorable regarding federally regulated markets.
Appearing before the U.S. Senate’s Agriculture, Nutrition and Forestry Committee, Quintenz would not commit to a review of event contracts that look like online sports betting sites.
“I believe the Commodity Exchange Act is very clear about the purpose of derivatives markets, the purpose of risk management and price discovery, and that events can serve a function in that mandate,” Quintenz said.
Quintenz could soon hold the power here, which is important because, as we’ve previously seen, controversial prediction market platform founder Tarek Mansour asserts that his company answers to the Commodity Futures Trading Commission alone, and is therefore not under the jurisdiction of any gambling regulators.
Miller has argued that this, too, is problematic, as the Commodity Futures Trading Commission was not designed to regulate gambling. It was created to protect farmers, ranchers and producers from price volatility in commodities such as corn, wheat and livestock.
Could a lack of regulation lead to gambling addiction rise?
Online sports betting in Kansas has been legal since 2022, but operators are strictly regulated and must be fully licensed and monitored to offer gambling within state boundaries. There are standards that must be followed regarding responsible gambling and player protection, with taxes generated through gambling paying for education and problem gambling programs.
Currently, prediction markets are operating outside of these regulatory systems. And that’s problematic because they aren’t required to provide any of the safeguards that regulated sportsbooks do. There are no self-exclusion programs available for prediction markets, and providers are free to market themselves without the boundaries that legal sports betting operators must comply with.
As the battle over prediction markets rages on, participants are potentially being exposed to gambling-related marketing without any of the protective measures that exist for regulated sports betting companies. This could soon spell trouble for states where prediction gambling is on the rise, as participants have fewer resources at their disposal to combat problem gambling.
Will we see a surge in problem gambling in these states as increasing numbers of participants fall foul of providers’ marketing? Time will tell.
