A small collective of U.S. Senators has signed a letter to the Commodity Futures Trading Commission calling on the regulatory body that oversees prediction markets to “enforce its own regulations” regarding sports event contracts.
In the letter, the senators, led by Catherine Cortez Masto (D-Nev.) and John Curtis (R-Utah), express their concern that the CFTC is “implicitly permitting sports gaming products that are regulated by states and tribes, not the CFTC.”
Allowing companies to self-certify and offer sports event contracts on their platforms “contradicts both the letter and the intent of the law,” the senators say. The letter explicitly calls the sports event contracts offered nationwide by platforms like Kalshi and Crypto.com “illegal.”
The letter, addressed to acting CFTC chair Caroline Pham, was reportedly circulating in Congress last week. It was publicly shared on Sept. 30 in a post on Sen. Cortez Masto’s website, summarizing the senators’ concerns as follows:
“The Senators underscore that by implicitly allowing some companies to offer sports betting activities as ‘event contracts,’ the CFTC is preventing enforcement of state and tribal gaming laws which inappropriately permits sports betting nationwide.”
Senators say CFTC inaction undermines state, tribal authority
The six senators who signed the letter represent a mix of states both with and without a legalized sports betting market. Along with Cortez Masto and Curtis, the letter was signed by Democratic senators Ruben Gallego (Arizona), Elissa Slotkin (Michigan), Adam Schiff (California) and Alex Padilla (California).
The letter says that by not taking action on sports prediction markets, the CFTC “undermines the sovereign authority of states and tribes to regulate gambling within their jurisdictions and risks federalizing an area of law that the Supreme Court has held is reserved to the states.”
The senators’ letter to Pham references the ongoing legal pushback from states that have legal sports betting and want sports event contracts restricted in their jurisdictions, citing cease-and-desist letters sent to prediction platforms by Nevada, New Jersey, Maryland, Montana, Ohio, Illinois, and Arizona. The letter also notes the 36 state attorneys general who joined an amicus brief “reaffirming states’ jurisdiction over sports gaming and warning that ‘eliminating the States’ ability to regulate online sports betting would pose very serious risks to the States’ citizens.’”
The senators believe that by circumventing state gaming laws, CFTC-approved platforms are avoiding having to be compliant with certain state laws related to sports betting, including licensing and background investigations, anti-money laundering regulations, and consumer protections like “addiction warnings and integrity monitoring.”
Senators pose 11 questions to CFTC acting chair
The senators also claim that by not stepping in to halt sports event contracts, the CFTC is not using the authority granted to the commission in the Commodity Exchange Act, which “prohibits the offering of event contracts involving or relating to ‘gaming,’” as laid out in Regulation 40.11. That seems to suggest that the senators don’t believe that sports event contracts should be offered at all.
The letter includes 11 questions for Pham, and the senators asked for her responses by Oct. 30. Some of the posed questions include:
- When will the CFTC resume enforcement under Regulation 40.11 to prevent illegal event contracts involving sports gaming activities?
- If the CFTC believes that all sports event contracts listed are outside the scope of prohibitions in the Commodity Exchange Act, how is the CFTC advising contract market firms seeking this authority on how they must comply with state laws including states where sports gaming is banned?
- How is the CFTC ensuring that athletes, referees, team employees, and others do not manipulate outcomes? How does the CFTC enforce the anti-manipulation requirements of sports event contract marketplaces?
- How is the CFTC ensuring that sportsbook companies comply with the Federal Wire Act when using geolocation data, anti-money laundering standards such as Know Your Customer, gambling addiction warnings and other requirements?
Letter comes same day as CFTC sports contract advisory
On the same day the senators’ letter was sent, the CFTC issued an advisory notice warning registered entities involved in offering prediction markets to be prepared for the “termination of sports-related event contract positions.”
The notice acknowledges registered entities are listing sports contracts and notes the “various forms of State regulatory actions and pending and potential litigation concerning the legality of sports-related event contracts listed on DCMs.”
The CFTC notice appears to be a warning that some of the state challenges may prove successful and recommends prediction market exchanges be prepared accordingly. It advises Designated Contract Markets (DCMs) like Kalshi, ForecastEx, and (soon) Polymarket US, as well as Futures Commission Merchants (FCM) like Robinhood, Interactive Brokers, and PrizePicks, to have contingency plans and risk management policies and procedures in place.
The notice, issued just ahead of the government shutdown, asks that registered companies regularly update customers, market participants, and clearing members about the latest legal developments, as well as liquidation or close-out policies related to the closing of sports event contracts.
Future of nationwide sports event contracts still unclear
The senator’s letter to the CFTC and the CFTC’s advisory to registrants both dropping on the same day (Sept. 30) could be a coincidence. But they both revolve around the possibility that prediction market platforms could lose their ability to offer sports event contracts in select states if the ongoing legal challenges don’t go their way. And they come at a time when leading U.S. prediction platform Kalshi is experiencing record-breaking trading volume thanks to sports event contracts.
The CFTC’s letter is the first time that the commission has publicly acknowledged the ongoing court battles over sports markets. Whether it’s simply a broad cautionary note or a sign that the commission is anticipating that the courts will rule against prediction platforms isn’t entirely clear.
The letter from Sen. Cortez Masto and others is the latest — and perhaps most direct — signal from Congress that there are concerns about sports event contracts and states’ rights to enforce their own regulations related to sports betting. Schiff, as well as Sen. Cory Booker (D-NJ), previously brought up the alleged conundrum during a hearing for then-prospective CFTC chair nominee Brian Quintenz.
But the fact that the letter, after being circulated the week prior in Congress, only included signatures from six Senators perhaps indicates that there isn’t a lot of appetite right now to further push the CFTC on the matter.
