Additional Coverage:
- CFTC chief sides with prediction markets over state regulators in a legal battle with big implications (nbcnews.com)
Federal Regulators and States Clash Over Booming “Prediction Markets”
A significant legal battle is brewing between federal and state authorities over the regulation of “prediction markets,” online platforms where users can trade contracts tied to the outcome of various events, from political elections to major sporting events like the Super Bowl. The Commodity Futures Trading Commission (CFTC) is stepping in, arguing that these markets fall under its federal jurisdiction, not state-level gambling laws.
CFTC Chairman Michael Selig announced Tuesday that the agency has filed an amicus brief in support of Crypto.com, which is currently facing legal challenges from Nevada regulators. This move marks a pivotal moment, as it’s the first time under Selig’s leadership that the CFTC has taken a definitive stance in this escalating dispute.
“Over the past year, American prediction markets have been hit with an onslaught of state-led litigation,” Selig stated in a video message. He added, “The CFTC will no longer sit idly by while overzealous state governments undermine the agency’s exclusive jurisdiction over these markets by seeking to establish statewide prohibitions on these exciting products.”
The debate comes as prediction markets experience a surge in popularity. Kalshi, a leading platform, reported a staggering $1 billion in total trading volume for Super Bowl 60, a 2,700% increase from the previous year.
Several states, including Massachusetts and Nevada, have moved to restrict these platforms, filing lawsuits and issuing cease-and-desist orders, asserting that they constitute unlicensed gambling. Utah’s Republican Governor, Spencer Cox, has vowed to use “every resource” to challenge Selig in court, stating that these markets are “destroying the lives of families and countless Americans, especially young men.”
Conversely, Ohio Republican Senator Bernie Moreno expressed support for Selig’s announcement, emphasizing the need for “clear lines of delineation and clarity on regulations” for American innovation.
The CFTC’s intervention follows a letter from a group of Democratic senators, led by Nevada’s Catherine Cortez Masto, urging the agency to “abstain from intervening in pending litigation involving contracts tied to sports, war, or other prohibited events.”
Industry advocates contend that prediction markets are not gambling, which is traditionally state-regulated. Instead, they classify them as financial exchanges where users trade contracts with each other, rather than betting against a “house.” These platforms collect transaction fees, similar to brokerage firms, and do not set odds or take the opposing side of trades.
Selig highlighted that prediction markets can allow Americans to “hedge commercial risks like increases in temperature and energy price spikes,” and serve as “an important check on our news media and our information screens.”
He concluded his video message with a clear warning to state attorneys general involved in these legal battles: “To those who seek to challenge our authority in this space, let me be clear: We will see you in court.” The central question now is not just whether these products are gambling, but who ultimately holds the authority to make that determination.