A group of U.S. Senators is taking the Commodity Futures Trading Commission (CFTC) to task over a perceived lack of prediction market enforcement in relation to state and tribal gaming laws.
Key Takeaways
- U.S. senators from five states argue the CFTC is allowing event contracts, which are the same as sports betting.
- The group gave the CFTC 11 questions and wants answers by Oct. 30.
- Lawmakers said the federal commission can’t replicate state and tribal laws and regulations.
The bipartisan lawmakers from five U.S. states sent a letter Monday to CFTC acting chair Caroline Pham outlining concerns that event outcome platforms, like Kalshi and Robinhood, are circumventing laws by offering “Yes” or “No” contracts on sporting events that include the NFL, college football, and MLB. Senators say it’s sports betting, which is legalized and regulated at the state, not federal, level.
“The CFTC is expressly prohibited from allowing event contracts that involve gaming, are unlawful under federal or state law or are contrary to the public interest,” the letter states. “Despite this prohibition, the CFTC is permitting sportsbook gaming to inappropriately designate themselves as ‘event contracts’ with oversight by the CFTC. For example, some companies are claiming to allow legal sports betting in all 50 states. This action - and the CFTC’s unwillingness to stop it - contradicts both the letter and the intent of the law.”
The senators challenged the CFTC to not “sidestep statutory obligations by declining to enforce the prohibitions that Congress enacted.” The group said that would undermine states and tribes and risk “federalizing” gaming laws, which are currently held by the Supreme Court at the state level.
Prediction predicament
Prediction market companies, such as Kalshi, which operates nationwide, have been involved in several legal battles with states. Kalshi has publicly claimed it is federally regulated by the CFTC and has filed lawsuits against state regulators.
“The continued availability of illegal sport event contracts in all 50 states further reaffirms the need for the CFTC to enforce its own regulations mandated by Congress,” the senators said. “Moreover, by claiming to be federally regulated by the CFTC, issuers of sports event contracts can avoid myriad state laws, including licensing and background investigations, minimum age requirements, federal anti-money laundering rules, and consumer protections such as addiction warnings and integrity monitoring. These rigorous standards are required by state and tribal licensed entities, which the CFTC does not have the authority or the capacity to replicate.”
The group of U.S. senators who signed the letter includes Catherine Cortez Masto (D-Nevada), John Curtis (R-Utah), Ruben Gallego (D-Arizona), Elissa Slotkin (D-Michigan), Alex Padilla (D-California), and Adam Schiff (D-California).
Arizona, Michigan, and Nevada all offer legal and regulated sports betting. California only has tribal-run gaming, which doesn’t include sports betting, and the state has begun cracking down on illegal gaming operators this year. Utah has a total ban on gambling.
Inquiry deadline
In the letter, the senators sent 11 questions to Pham and requested answers by no later than Oct. 30. The list of inquiries includes having the CFTC explain how it views sports betting and event contracts, how prediction market companies are compliant with integrity regulations, and if those platforms are adhering to the Federal Wire Act.
The CFTC recently joined forces with the Securities and Exchange Commission. The two sides held a joint roundtable discussion on derivative markets this week, but defining the legality of sports-related contracts was not on the agenda.
CFTC advisory
The CFTC issued an advisory Monday concerning particular derivative markets in relation to the current U.S. government shutdown. The list includes "futures commission merchants, introducing brokers, designated contract markets, derivatives clearing organizations, and registered futures associations about certain contract markets regarding preparations with respect to potential market disruption during a lapse in government appropriations," the CFTC said.
“The advisory, issued by the Market Participants Division, the Division of Clearing and Risk, and the Division of Market Oversight, is a reminder to be prepared for all foreseeable conditions that may result from facilitating trading and clearing of certain contract markets for customers, other market participants, and clearing members. The advisory is a reminder of certain applicable regulatory requirements and does not create new obligations.”
