Sleeper, a fantasy sports platform, has initiated a legal challenge against the Commodity Futures Trading Commission (CFTC), accusing the regulator of unlawfully blocking its entry into the prediction market sector.
Key Takeaways
- Sleeper has accused the CFTC of illegally blocking its application to operate in prediction markets.
- The company's counsel argued the denial violates the Commodity Exchange Act and stifles innovation.
- The OIGs of both the Treasury and CFTC are reviewing the allegations for possible action.
Sleeper's counsel, Milbank partner Joshua Sterling, submitted a letter to the Offices of the Inspector General (OIG) for both the CFTC and the U.S. Department of the Treasury. The filing argued the CFTC improperly interfered with the National Futures Association's (NFA) review of Sleeper's application to register as a futures commission merchant (FCM).
According to Sterling, the NFA was prepared to approve the application in August before the CFTC ordered it to be withheld without explanation. He contended this amounted to an "illegal delay" in violation of the Commodity Exchange Act.
The FCM status would allow Sleeper to partner with a designated contract market to offer event-based futures contracts, particularly on sports. Sterling stated the agency lacked discretion to block approval of materially complete applications.
The letter accused the commission of abuse and mismanagement, asserting that preventing Sleeper's entry restricts competition and innovation. With the OIGs now reviewing the allegations, the matter could escalate into administrative or legal action.
A CFTC-SEC prediction markets roundtable on way
The dispute comes ahead of a joint roundtable between the CFTC and the Securities and Exchange Commission (SEC), scheduled for Sept. 29. The event will focus on regulatory harmonization in derivatives markets, with event contracts being a priority topic.
In a joint statement earlier this month, the agencies said fragmented oversight and legal uncertainty have clouded “novel products” such as cryptocurrencies and prediction markets. They added the SEC and CFTC need to work together to prevent a regulatory “no-man’s-land” from forming.
The commissions noted that prediction markets have grown globally and urged cooperation to ensure clarity for operators.
The roundtable will also address issues such as 24/7 markets, portfolio margining, and innovation exemptions. While details on invited participants remain unclear, the discussion will mark the regulator's first formal session on prediction markets after canceling a planned forum earlier this year.
PredictIt gains regulatory approval
While Sleeper presses its case, PredictIt secured formal approval to operate as a regulated derivatives exchange. The CFTC granted its operator, Aristotle, licenses to run both an exchange and a clearinghouse, with a launch targeted for October.
PredictIt had operated for years under a no-action letter that was withdrawn in 2022. That revocation led to litigation, which PredictIt ultimately won in July. The approval now places it on firmer regulatory footing alongside competitors such as Kalshi and Polymarket.
The authorization follows several recent CFTC approvals for prediction market platforms, signaling a shift toward broader acceptance of event-based contracts. Aristotle said the approval would enable it to provide a more transparent and robust trading environment, expanding beyond its previous academic-based framework.
