Feds want to stop states regulating, blocking prediction markets
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By
Chris Teale
The online marketplaces have exploded in popularity, but while state leaders say they are like sports betting, regulators argue they are instead subject to federal oversight and threatened legal action.
In addition to the massive surge in sports betting nationwide, the United States has seen a massive growth in betting via prediction markets, and the federal government wants to stop states from regulating them.
Commodity Futures Trading Commission Chair Mike Selig said in a video posted to X, formerly Twitter, that the commission has “exclusive jurisdiction” over prediction markets like other commodity derivatives markets, in the face of what he called an “onslaught of state-led litigation.”
Selig said the CFTC filed an amicus brief in federal court in a case brought by Crypto.com against state regulators in Nevada after the state’s Gaming Control Board ordered the company to remove its prediction market from the state over claims they are offering unlicensed sports betting. And Selig, who represented cryptocurrency clients as a lawyer before being confirmed to chair the CFTC last year, pledged further legal action.
The CFTC’s intervention has prompted a furious response from some state officials, who are already seeing the federal government try to preempt their efforts to regulate other industries like artificial intelligence. Utah Gov. Spencer Cox, a Republican, rejected claims that the CFTC has authority over prediction markets as sports statistics cannot be invested in, unlike commodities.
“These prediction markets you are breathlessly defending are gambling — pure and simple,” Cox said in a post on X. “They are destroying the lives of families and countless Americans, especially young men. They have no place in Utah.”
Prediction markets have gained popularity in recent years to guess the outcome of all manner of future events, whether it be sports, elections, international incidents, how the price of cryptocurrency will fluctuate, and many more. Instead of betting, users trade online against one another on the likelihood of various outcomes, and because it is classified as an event derivative, they are available in all 50 states and are not overseen by state gambling agencies but by the CFTC.
Kalshi, one of the leading prediction market companies, said it has over $100 billion in annualized trading volume, while its $263.5 million revenue from trading fees was almost 90% from sports. The rush to prediction markets has prompted sportsbooks like DraftKings, FanDuel and Fanatics to open their own.
States have tried to regulate or shut down prediction markets, arguing they are tantamount to gambling, with Nevada’s lawsuit against Crypto.com ongoing. The CFTC’s brief, its first intervention in such a case, argues that only it has the jurisdiction over prediction markets, not state laws.
“America is home to the most liquid and vibrant financial markets in the world because our regulators take seriously their obligation to police fraud and institute appropriate investor safeguards,” Selig wrote in an accompanying op-ed for The Wall Street Journal. “Any erosion of the CFTC’s ability to regulate transactions in commodity derivatives is a direct threat to the markets and investors Congress intended the agency to oversee.”
States have already moved against prediction markets as they seek to get the industry under their control. Massachusetts Attorney General Andrea Joy Campbell won a preliminary injunction in January to prevent Kalshi from operating a sports prediction market, on the basis that the “event contracts” that it offers closely resemble sports wagers. But as Kalshi does not hold a state sports wagering license, Campbell said it was operating illegally.
“The Court has made clear that any company that wants to be in the sports gaming business in Massachusetts must play by our rules – no exceptions,” Campbell said in a statement at the time. “Today’s victory marks a major step toward fortifying Massachusetts' gambling laws and mitigating the significant public health consequences that come with unregulated gambling.”
Meanwhile, Utah is considering legislation that would make various revisions to its gambling laws, although that bill has faltered over concerns it would trigger legal action from the CFTC due to its prediction markets provisions. Federal lawmakers, meanwhile, urged Selig not to intervene in litigation on prediction markets, especially after he testified during his nomination hearing that he would defer to the courts on such matters.
“The real-world consequences are already evident,” a group of almost two dozen Democratic senators wrote in a letter to Selig. “Prediction market platforms are offering contracts that mirror sportsbook wagers and, in some cases, contracts tied to war and armed conflict. These products evade state and tribal consumer protections, generate no public revenue, and undermine sovereign regulatory regimes.”