Until recently, the Commodity Futures Trading Commission (CFTC) had little to do with sports wagering. But that could significantly change if the U.S. Senate confirms Brian Quintenz as CFTC Chairman.
In preparing for his confirmation hearing, Brian Quintenz submitted a financial disclosure and an ethics statement, outlining how he'd handle potential conflicts of interest. As CFTC Chairman, Quintenz would regulate prediction market providers, including Kalshi, where he serves as a board member.
Key takeaways
- As CFTC Chairman, Brian Quintenz would oversee prediction market operators, including Kalshi.
- The CFTC is currently evaluating the role of prediction market operators in sports betting.
- States and traditional sports wagering companies stand to lose millions should the CFTC decide prediction market operators can operate as de facto sportsbooks.
Background
States rushed to legalize sports betting after the U.S. Supreme Court lifted the ban in 2018. Sports wagering companies like DraftKings and FanDuel spent relative fortunes to secure licenses, state by state. And states spent time and money, building up regulatory agencies to oversee the fledgling gambling sector and collect their newest revenue source.
Prediction market operators like Kalshi are challenging sports betting’s state regulatory framework. The CFTC federally regulates prediction markets that offer futures contracts. Traditionally, the contracts focused on financial outcomes, like the price of oil or Bitcoin. Now, however, prediction markets offer contracts based on sporting event outcomes.
In January, Kalshi informed the CFTC of its intent to offer sporting event contracts, just in time for the Super Bowl. The move came right after Rostin Benham resigned as CFTC Chairman. Benham was against prediction markets offering contracts on elections and sporting events. In fact, Kalshi had to take the CFTC to court to win the right to offer futures contracts on the 2024 U.S. presidential election.
If Quintenz is confirmed, prediction markets will have a strong ally in their quest to expand into sports betting. While Quintenz will be somewhat constrained by the agency’s ethics rules, his statement outlines several ways those rules can be bypassed.
Ethics statement leaves plenty of wiggle room
If confirmed, Quintenz states he'll resign from his position at KalshiEx and ultimately divest his financial interests in the prediction market company. Yet, he'll still have plenty of room to affect its financial interests.
In the up-to-90 days he predicts it takes to divest his equity interests in Kalshi, he says he won't “participate personally and substantially in any particular matter that to my knowledge has a direct and predictable effect on the financial interests of this entity.” He can however get a written waiver or qualify for an exemption that would let him to do just that.
Also, Quintenz states he will “not participate personally and substantially in any particular matter involving specific parties in which I know KalshiEx is a party or represents a party.” But he can do just that if he first gets an authorization.
These conflict-of-interest caveats aren't uncommon. While judges are supposed to recuse themselves from cases where they have personal or financial interests, it's rare when it happens. Members of Congress frequently hold stocks in companies that directly benefit from their votes.
So, it's fair to say Kalshi and other prediction market firms will find a sympathetic ear should Quintenz be confirmed as CFTC Chairman, regardless of his ethics statement.
