Risky Business
the CFTC's upcoming roundtable on prediction markets will tackle the contentious sports contracts debate, with experts weighing legal, regulatory, and industry impacts.
All eyes are on the Commodity Futures Trading Commission (CFTC) as it prepares to issue a monumental decision on what prediction markets can and can’t offer. We’ve heard from Kalshi and other stakeholders, as well as plenty of organizations and industry experts on both sides (there are currently 25 comments on the CFTC website).
Still, some of the most interesting commentary is occurring elsewhere.
In this column, I have compiled commentary from the following:
Ryan Rodenberg, Professor of Sport Management at Florida State University
Alfonso Straffon, High-Yield Bond Trader and Sports Betting Industry Analyst
Alex Ursa, Head of Gaming at Betr
Brownstein, Hyatt, Farber, Schrek Law Firm
These opinions and analyses cover various aspects of the conversation that point to a single overarching question: Will the CFTC's decision legitimize sports prediction markets or spark a broader regulatory clash?
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Trouble In Paradise: States Have Concerns
Given the current landscape (with tribal and commercial gaming operators calling foul), any decision by the CFTC is unlikely to be the last word:
Nevada sent Kalshi a cease-and-desist letter: Nevada kicked off the actions against prediction markets earlier this month, issuing a cease-and-desist letter to Kalshi calling its sports and election markets "unlawful in Nevada, unless and until approved as licensed gaming by the Nevada Gaming Commission.”
Massachusetts Secretary of State Bill Galvin is investigating Robinhood: Massachusetts Secretary of State Bill Galvin has opened an investigation into Robinhood’s sports contracts and issued a subpoena to the firm, Per Reuters. Galvin called the sports markets a “gimmick from a company that’s very good at gimmicks.”
New Jersey has sent Kalshi and Robinhood a cease-and-desist letter: “The New Jersey Department of Gaming Enforcement has issued cease-and-desist letters to both the prediction markets platform Kalshi and financial platform Robinhood,” per Dustin Gouker’s The Closing Line Substack.
And on the New Jersey front, the C&D has already had a significant impact:
Assuming the CFTC decides in favor of prediction markets (to some extent), these actions are likely the beginning of what could be another journey to the Supreme Court to determine, as I asked in a previous feature column, what is and isn’t gambling.
Back to today’s regularly scheduled programming, starting with Professor Ryan Rodenberg.
Ryan Rodenberg: The CFTC’s Quandary & Legal Questions
Ryan Rodenberg, a Florida State University professor who has followed the Kalshi v. CFTC litigation closely, is one of the 25 submitted letters to the CFTC.
Rodenberg wrote:
“The CFTC accurately pinpointed the plethora of legal issues surrounding sports-related event contracts in its recent announcement. I have followed the ongoing litigation closely¹ and have written a number of scholarly articles pertaining to various issues surrounding sports prediction markets and sports wagering generally.”
With his letter, Rodenberg included the three articles, written in 2017 and 2018, on sports prediction markets, that highlight 1) how long the idea of prediction markets being authorized has been around, and 2) how the slippery slope into sports didn’t creep up on anyone.
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A 2008 Science article was the basis of the series, with Rodenberg noting the researchers proposed CFTC oversight of prediction contracts for “selected small-stakes markets” on “economically meaningful events.”
Those meaningful events included “political events, environmental risks, or economic indicators…but would presumably not include contracts on the outcomes of sports events,” Rodenberg, quoting the 2008 Science article, noted. “Because Congress did not intend the CFTC to regulate gambling, it is important to design new regulations so that socially valuable prediction markets easily qualify for the safe harbor but gambling markets do not.”
Rodenberg highlighted that CFTC rules enacted after Dodd-Frank included trading prohibitions on: “Terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law.” The CFTC also included a catch-all ban for any similar activity “contrary to the public interest,” Rodenberg wrote.
And that one word, gaming, is how we arrived at this point.
Speaking to Straight to the Point, Rodenberg said:
“The word 'gaming' was left undefined when it was added over a decade ago, and the CFTC recently offered a proposed definition. The ambiguity has been an issue in the ongoing litigation, and the district court judge weighed in late last year when ruling in Kalshi's favor."
And then there is the equally important “activity that is unlawful under any State or Federal law” bit, which Rodenberg explained to STTP:
"As evidenced by Nevada's recent cease-and-desist order issued to Kalshi, there is considerable friction between state and federal regulation in the sports event contract space. MLB and other sports leagues will likely seize upon such friction and use it as a lever to get involved directly as a way to control revenue streams moving forward."
Alfonso Straffon: The Duck Test & Stakeholder Dilemmas
Alfonso Straffon, High-Yield Bond Trader and Sports Betting Industry Analyst, noted how off the rails the sports betting market has become, in recent X posts:
Straffon followed that up with two LinkedIn posts, expressing his thoughts on the new state of affairs brought on by the rise of prediction markets, spurred by a question on X from Prof. Koleman Strumpf, a prediction markets expert at Wake Forest University.
Part 1: Like you and many... I, too, have many thoughts on legal issues. Obviously am not a lawyer, but for me personally, I have a hard time reconciling how this is not 'gambling' or 'gaming' on sports when the same exact thing can be/is offered by sportsbooks... they just choose to display American odds instead of %'s.
He went on to list several hiccups that the prediction markets’ foray into sports betting could cause:
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