The recently announced settlement between the Commodity Futures Trading Commission (CFTC) and PredictIt may be a sign that the new administration is ready to loosen regulations for prediction market operators – and that could be bad news for state regulated sports betting.
The prediction market PredictIt and the CFTC have settled their years-long lawsuit per a joint status update filed in the U.S. District Court for the Western District of Texas on Tuesday. The terms of the settlement will be presented to the court in short order.
Key Insights
- The CFTC and PredictIt have reached a settlement in their longstanding lawsuit.
- The timing of the settlement coincides with the pending confirmation of a new prediction market-friendly CFTC chairman.
- A looser regulatory regime could be a boon to prediction market operators but a threat to state licensed and regulated sportsbooks.
PredictIt is a New Zealand-based prediction market provider, offering futures contracts in financial and election events. As a futures contract provider, PredictIt is regulated in the U.S. by the CFTC.
Case background
In 2014, the CFTC granted a “no-action” letter to PredictIt, allowing the company to offer its election event contracts without the worry of potential enforcement actions from the regulator. In August 2022, however, the CFTC rescinded that letter, giving the operator until Feb. 23 to liquidate its contracts. In September 2022, Predictit challenged that decision in court.
In early 2023, the federal court enjoined the CFTC from closing PredictIt’s event contract market until the court reached its decision in the case. Since then, the sides have traded various motions and filings, without resolution. That is, until now.
The timing and implications of the settlement
Given the timing of the settlement, one assumption is that PredictIt will continue to operate under CFTC supervision. This is speculation, of course, until the release of the settlement terms. Since a newly nominated CFTC chair is currently going through confirmation hearings, however, the timing seems relevant. The fact that the nominee Brian Quintenz is also a board member of the prediction market operator Kalshi may also be a tell.
The settlement may also have broader implications in the sports betting sector. Although PredictIt does not offer sporting event contracts, other prediction market operators do. And this is a problem for state regulated sportsbooks and the tax revenue they generate.
Currently, states regulate U.S. sport betting providers. State agencies currently license, regulate, and tax both retail and online sportsbooks operating in their jurisdiction. Prediction markets, however, are regulated at the federal level. They do not pay state licensing fees nor state taxes. Prediction markets offering sporting event contracts could deprive states of significant revenue.
As a result, several states have filed cease-and-desist orders to prediction market providers. Some of these actions have precipitated lawsuits. Just this week, Ohio’s Attorney General Dave Yost spearheaded a 36-state coalition, filing an amicus brief opposing Kalshi’s event-based betting market classification in New Jersey’s current lawsuit.
If the CFTC and prediction markets were to usher in a new, more cooperative, regulatory relationship, that might undermine the states’ ability to exclude them from operating in their jurisdictions.
