Senators Warn Regulator: Don’t Interfere in Prediction Market Lawsuits
▼ Summary
– A group of 23 Democratic senators urged the CFTC to avoid intervening in state lawsuits over prediction markets and to ban contracts tied to events like sports and war.
– Prediction markets, which let users trade contracts on real-world outcomes, have grown popular but face legal challenges from states arguing they should be regulated as gambling.
– The CFTC, which currently oversees these markets as derivatives, is considering asserting its exclusive jurisdiction, with its chairman rejecting the comparison to sports betting.
– There is a significant regulatory divide, as the Biden-era CFTC proposed bans on certain contracts, while the current leadership under Chairman Selig has withdrawn that proposal and taken a more permissive stance.
– As the debate continues, more companies, including major sportsbooks and Truth Social, are launching their own prediction market products.
A significant group of twenty-three Democratic senators has formally requested that the Commodity Futures Trading Commission (CFTC) refrain from intervening in numerous state-level lawsuits concerning prediction markets. These platforms, which allow users to trade contracts based on real-world event outcomes, have surged in popularity, drawing both mainstream interest and intense regulatory scrutiny. The senators argue that the federal regulator should not insert itself into ongoing legal battles over whether these markets constitute illegal gambling.
The letter highlights a deepening conflict between state and federal perspectives on how to handle companies like Polymarket and Kalshi. While the CFTC asserts its exclusive jurisdiction over these markets as derivatives, state authorities are aggressively challenging their legality, treating them as unlicensed gambling operations. This tension is playing out in at least nineteen federal lawsuits, with states like Massachusetts already securing injunctions against certain market offerings. In a notable development, Polymarket has countersued Massachusetts, contesting the state’s regulatory authority over its business model.
This congressional push comes directly after CFTC Chairman Rostin Behnam, who assumed his role in December, indicated a willingness for the agency to actively defend its regulatory turf. In recent public comments, Behnam emphasized the CFTC’s “expertise and responsibility” in this area, signaling a potential shift toward a more permissive federal stance compared to the previous administration’s efforts to impose restrictions.
Led by Senator Adam Schiff of California, the senators’ correspondence urges a different path. They specifically call on the CFTC to prohibit contracts related to gaming, war, terrorism, and assassination, expressing concern that these products bypass state consumer protections and generate no public revenue. Other notable signatories include Senators Cory Booker, Amy Klobuchar, and Ron Wyden.
The regulatory landscape has become increasingly polarized. The Biden-era CFTC had moved to ban certain contract types, including those tied to sports and political events. However, under the current leadership, that proposal was swiftly withdrawn. Chairman Behnam has since established a new advisory panel that includes the CEOs of major prediction market firms, and he has publicly rejected comparisons to sports betting. In a recent podcast appearance, he argued these are not simple wagers, stating, “We have significant overlay from a regulatory standpoint over these markets.”
Industry advocates strongly support the CFTC’s current direction. Former Congressman Sean Patrick Maloney, now leading a prediction market lobbying coalition, contends that state gaming commissions lack the necessary expertise to oversee complex derivatives markets, making federal jurisdiction essential.
Amid this high-stakes regulatory fight, the market continues to attract new entrants. Major online sportsbooks like DraftKings are launching their own prediction products. Notably, Truth Social, the platform largely owned by former President Donald Trump and his family, is preparing to debut “Truth Predict,” which will reportedly include contracts on events across all major sports leagues.
(Source: Wired)