The prediction market sector is facing intense scrutiny in the US, with at least 20 federal lawsuits filed against companies like Kalshi and Polymarket. State lawmakers and gaming regulators are arguing that these platforms are essentially gambling operations, but with a different name. As reported by The Guardian, the row has escalated, with the chair of the US Commodity Futures Trading Commission (CFTC) announcing that it was filing a friend-of-the-court brief in defense of its exclusive jurisdiction over these derivative markets.
The legal battle comes as the sector surges, with over $1bn traded on Kalshi alone during Super Bowl Sunday. Established sportsbook operators, including DraftKings, FanDuel, and Fanatics, have also launched their own prediction platforms. Prediction markets allow users to trade on the outcome of virtually anything, from sports and elections to award shows and speeches.
Because they classify their offerings as 'event derivatives,' they fall under federal commodities law and are currently overseen by the CFTC, rather than state gaming regulators. This makes them available in all 50 states to users 18 and older. However, lawmakers and regulators argue that this is a loophole that allows them to operate without proper regulation.
Academic Perspectives
Gregory Gemignani, a gaming law lawyer and professor at the University of Nevada, Las Vegas, said that the prediction markets have none of the regulations that sportsbooks and casinos have to comply with. John Holden, a business law professor at Indiana University, added that the lines between gambling and investing have been blurred, and that this will eventually come to a head.
Karl Lockhart, a law professor at DePaul University, said that the mounting litigation may push the issue to the supreme court. He noted that the issue doesn't fit neatly into political bubbles, making it an interesting case.
Labour Market Data
The CFTC's new chair, Michael Selig, has signaled support for the 'responsible development' of event contracts and withdrawn proposals that would have limited political and sports event offerings. The CFTC has also unveiled a new 'innovation advisory committee' composed of the CEOs from companies including prediction markets such as Kalshi and Polymarket.
Selig announced that the CFTC had filed a friend-of-the-court brief to defend its jurisdiction over prediction market platforms in the ninth circuit court of appeals. He added that the CFTC will no longer sit idly by while overzealous state governments undermine the agency's exclusive jurisdiction over these markets.
Personal Accounts
Scot Matayoshi, the Hawaii state representative who introduced a measure to bar online platforms from offering contracts tied to real-world outcomes, said that the offerings were 'basically gambling but with another name and through a loophole.' He also raised insider trading concerns, noting that they saw almost half a million dollars in bets for what words the Hawaii governor would say in his state of the state address.
Cole Wogoman, the director of government affairs and league partnerships at the National Council on Problem Gambling, said that the council is focused on trying to get the space to have the same protections and regulations that you'd see at the state or with tribal gaming.
Regulatory Framework
The American Gaming Association (AGA) and the Indian Gaming Association have urged Congress to address what they call 'unregulated sports event contracts being offered by prediction markets.' Chris Cylke, the senior vice-president for government relations at the AGA, said that this is fundamentally about state and tribal sovereignty and their ability to regulate their gambling marketplaces.
A Kalshi spokesperson told the Guardian that they support Ritchie Torres's bill to curb the risk of insider trading among federal officials and their staff. The company has also added a responsible trading hub, which it said had protections comparable to those that sportsbooks and casinos offer.
Clinicians are also watching closely, with Timothy Fong, an addiction psychiatrist and gambling researcher at UCLA, saying that more patients are using the platforms and describing themselves as 'investors' rather than 'gamblers.' He noted that ideally, these products would be regulated by the people that know how to handle gambling.
