The National Basketball Association sent a letter to the Commodity Futures Trading Commission (CFTC) last week outlining its concerns about prediction markets’ sports contracts. While Kalshi hasn’t publicly responded to NBA or other leagues’ stated concerns, the company has demonstrated a commitment to compliance when it comes to market integrity.
As a federally regulated commercial prediction market platform, Kalshi is required to employ fraud engineers who monitor markets for suspicious trading activity. The company also reports positions to the CFTC so the agency can monitor whether disproportionately large trades are skewing contract prices.
By similar mechanisms, sportsbooks also share data with sports leagues to help protect game integrity and enforce sanctions on players or others who are forbidden from betting but do so anyway. In a statement provided to Prediction News, Kalshi defended its market integrity systems, including the special precautions it has taken for sports:
“We have our own internal surveillance system, which tracks all trades across all markets and is fully compliant with the CFTC. Additionally for sports, we use Prohibet by IC360 to ensure we are compliant with the leagues, similar to other sports properties.”
Prohibet features address some but not all concerns
One of Prohibet’s features matches sensitive information like Social Security Numbers to the shared database of prohibited sports bettors (those excluded from placing bets at regulated sportsbooks). Prohibet can alert betting platforms when players, umpires, and other prohibited league personnel try to bet on sports markets.
While that may address the NBA’s concerns about game integrity, the league still wants access to the suspicious trades to know what kinds of behaviors to monitor during games. State gambling regulators have granted leagues access to these bets and data streams, and from the sounds of their letter to the CFTC, the NBA wants a similar concession from prediction market platforms.
The question of responsible gambling safeguards is an extension of the current fight over whether states can draw any lines between event contracts and sports wagers.
Which regulators get a say?
Over half a dozen states have sent cease-and-desist letters to Kalshi, Robinhood, and Crypto.com over event contracts on sports. Since they’re identical to sports wagers offered by Sporttrade, a prediction market company that exclusively offers sports contracts under state gambling regulations, states have argued that Kalshi’s sports contracts are illegal sports betting.
Kalshi’s retort is as a federally-regulated platform, only the CFTC can limit its event contracts. The company argued in briefs against Nevada and New Jersey regulators that Congress gave the CFTC exclusive regulatory authority over derivatives because the contracts had to be made available nationally, and state differences could disrupt trading.
Possible outcomes include a CFTC compromise
If courts determine that states can prohibit sports contracts, then the leagues can maintain their preferred integrity practices (for sports betting).
If sports event contracts are here to stay, the CFTC could maintain the market integrity requirements they already have in place, without addressing league integrity concerns around the sports markets. Under CFTC Chairman nominee Brian Quintenz’s leadership, this is within the realm of possibility.
However, there is also a possibility for a middle ground. The CFTC could implement new requirements for sports event contracts that explicitly address some league concerns about data sharing, game integrity, and prohibited wagers like individual player props or bets on injuries.
Until we have more clarity, expect more leagues and sports betting industry stakeholders to echo the NBA’s concerns.
