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The federal regulator that oversees prediction markets has taken a first step to establish oversight on the booming—and controversial—industry.
The Commodity Futures Trading Commission said Thursday it’s “actively discussing” the integrity of sports event contracts with pro leagues, noted that certain sports offerings are particularly susceptible to manipulation, and teased new rules to come for the industry.
The CFTC issued an advisory reaffirming that it is the regulator in charge of policing prediction markets. The agency is also seeking public comments on new rules it intends to eventually introduce; anyone will be able to submit comments for a period of 45 days.
The statements issued Thursday do not represent any immediate change to existing laws, but serve as a roadmap for the public to see how the CFTC is thinking about prediction markets, including sports event contracts—which have drawn controversy and generated lawsuits due to their similarity to traditional sports betting, which is regulated on a state-by-state basis.
The regulator is “actively discussing” the integrity of sports event contracts with “some relevant sports leagues and their governing bodies,” and believes that “appropriate” information sharing by leagues with the CFTC “may lead to enhanced oversight capabilities,” the agency said.
A source close to one of the Big Four U.S. pro sports leagues tells Front Office Sports that the phrase “actively discussing” may be a little overblown at this point. The CFTC sent a memorandum to all the major leagues, but the source says the CFTC is more “asking for conversations” than actively having them. “At some point, this will lead to deeper discussions,” the source says.
The CFTC did not immediately respond to a request for additional comment.
Onus on the Operators
In its notice, the regulator cautioned that operators—which include Kalshi, Polymarket, Robinhood, Crypto.com, and others—are responsible for ensuring that the markets they offer are legally compliant and not easily susceptible to manipulation or insider trading. For instance, sports event contracts on what team will win a given game are less prone to manipulation than a market on whether an individual player will score less than a certain amount of points.
Specific examples of market types the CFTC said could be vulnerable to manipulation are those based on “injuries to individual players and unsportsmanlike conduct”—anything where an individual could have an oversized impact on what happens.
Although the term wasn’t explicitly used, player props—which Kalshi, Robinhood, and others offer—are wagers the CFTC appears to want platforms to take considerable care with. The agency reminded platforms that when they self-certify markets, they must include an explanation of why it is in compliance with CFTC regulations, and that the explanation cannot be “overly broad.”
Critics of sports event contracts, including gaming attorney Dan Wallach and Robinson College of Business law professor Todd Phillips, pointed out that the guidance failed to address a CFTC regulation called rule 40.11(a)(1), which bars event contracts that relate to issues including “gaming” or “activity that is unlawful under any state or federal law.”
‘Game Changer’
Law firm Katten Muchin issued a memo calling the advisory a “game changer.” The memo was written by attorneys including partners Carl Kennedy and Dan Davis, both of whom previously worked at the CFTC.
“The advisory carries significant implications for all market participants,” the memo says, adding platforms “should expect enhanced scrutiny of self-certification submissions and are strongly encouraged to engage proactively” with leagues and governing bodies “before listing contracts in elevated-risk categories.”
Where Leagues Stand
Some leagues have already embraced prediction markets; the NHL has partnerships with both Kalshi and Polymarket and MLS is in business with Polymarket. The NFL, NBA, and MLB have yet to embrace the industry—although the NFL has made clear it could be open to changing its stance if regulations are sufficiently strong, while MLB commissioner Rob Manfred said last month the league is considering striking formal deals.
An NFL spokesperson told FOS Friday the league “has made clear that sports prediction markets need a robust regulatory framework, with the same high standards for integrity and consumer protection that apply to legal sports betting.”
The new guidance and notice of rulemaking “begins a process that we hope eventually leads to the CFTC setting the necessary guardrails to protect both the integrity of the game and consumers participating in these rapidly evolving markets,” the NFL spokesperson said.
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