CFTC Preparing Crackdown on Prediction-Market Promos

The CFTC is conducting a sweep of incentive programs offered by prediction-market platforms over concerns that some companies are using misleading promotions to attract traders, Front Office Sports has learned.

The regulator is looking into platforms that offer incentives for traders and market makers, sources say. The result could be targeted examinations of exchanges or direct enforcement investigations, a source familiar with the conversations taking place at the agency tells FOS. CFTC chairman Michael Selig has yet to decide on his exact approach but an “action” of some kind is expected by the end of this week, the source says.

It was not clear which specific companies will be affected by the “imminent” action, although platforms like Kalshi, Polymarket, and Novig all offer incentives that could draw the agency’s attention. A representative for the CFTC declined to comment.

The CFTC in August issued an advisory reminding companies of their obligations under the Commodity Exchange Act and asked them to come into compliance. Under CFTC regulations, companies must make filings prior to implementing incentive programs that outline the rules governing them. Those filings must also provide complete information about the programs, and it’s the responsibility of each company to ensure they comply with requirements around fair access and market integrity.

As one example, the regulator is looking into offerings promising that a specific amount of money will be deposited into a user’s account if they sign up and make certain trades, sources say. The August advisory also flagged programs offering “risk-free” trades, unlimited rebates, and payouts guaranteeing profits as those that could undermine legitimate trading activity. 

The CFTC has been “frustrated” with companies’ failure to come into compliance following the August advisory, and there are a “slew of programs deemed to be misleading,” one source tells FOS. 

Selig sees cleaning up these rewards programs as part of his agency’s broader mandate to protect market integrity, sources say. The anticipated action comes amid pressure from a handful of politicians on both sides of the aisle.

The CFTC is currently working on finalizing new rules to govern the industry. It issued a proposal in June that would restrict markets it views as susceptible to manipulation, like those tied to a specific player’s health, or those that would be similar to what got Guardians pitchers Emmanuel Clase and Luis Ortiz in trouble (the bets involved in their situation were placed on traditional sports betting platforms, not prediction markets). 

Leagues like the NHL, MLB, and MLS have embraced prediction markets. The NBA has not yet but is expected to soon, while the NFL remains a staunch holdout.

Last week, the Wall Street Journal reported that the CFTC is examining unusual trading on Kalshi, although Kalshi says it has done nothing wrong. A few days before that, the WSJ reported that the CFTC told Polymarket and its employees to retain records related to a fraud attack on its U.S. app.

On Sept. 22, the CFTC warned exchanges that so-called “mention markets”—which allow users to trade on what words or phrases someone will say in a speech or during an event—”present a heightened risk of manipulation.” In August, the CFTC ordered a former teleprompter operator for President Donald Trump to return roughly $107,539 in profits he made trading on mention markets using inside information and pay an additional $65,000 fine. 

The CFTC has generally been supportive of the prediction-market industry, which has significant ties to Trump and his family. The regulator has sued nine states, including New York, Kentucky, and Minnesota, over their efforts to block sports event contracts.

Prediction markets are not alone in offering controversial incentive programs. Traditional sportsbooks have faced penalties from state regulators in the past. In 2023, the Ohio Casino Control Commission fined DraftKings, Caesars, and BetMGM $150,000 apiece over issues including their use of bonuses that were described as “free” or “risk free.” In 2024, the Massachusetts Gaming Commission hit Penn Entertainment with a $25,000 fine over a “can’t-lose parlay” that was regularly advertised by Dan Katz (Big Cat) from Barstool.