Tribal gaming leaders are warning that a bill in Congress regulating cryptocurrency will serve as a back-door attempt to legalize prediction markets and online gaming.
The CLARITY Act, designed to establish a permanent regulatory framework for the cryptocurrency and digital-asset industry in the U.S., is promoted as a cryptocurrency-market structure bill, but tribal gaming leaders see something far more ominous emerging beneath the surface, according to Jason Giles, executive director of the Indian Gaming Association. If wagering is reclassified as a federally regulated financial product, tribes fear their exclusivity rights could slowly erode.
Under the bill, digital commodity trades using crypto enable a system where those trades are referenced to a sports bet or casino game outcome, according to Giles.
Giles, IGA Conference Chair Victor Rocha, and tribal gaming attorney Scott Crowell discussed this issue in a webinar.
The concern is that federally regulated prediction markets could bypass tribal-state compacts, weaken state gaming authority, and create nationwide gambling outside state and tribal regulation. Prediction markets current drawing their authority from the Commodity Futures Trading Commission under the Commodity Exchange Act, which is challenged in court as violating federal and state laws.
Giles said they continue to work on getting Congress to amend the Commodity Exchange Act to prohibit sports betting and casino games by prediction market operators.
“Over the last six months, we’ve noticed that there’s no difference between prediction markets and crypto companies,” Giles said. “They all advocate for the same thing, which is anonymity.”
Giles said they’re lobbying 16 Democratic senators to defeat the CLARITY bill, supported by the Trump Administration on behalf of the crypto industry.
“We’ve been focused on prediction markets, but in the past couple of weeks, we’ve been taking a deep dive on the CLARITY Act,” Giles said. “I was worried about prediction markets ending gambling as we know it, but now I have to worry about cryptocurrency destroying the U.S. dollar as the core currency. It’s nutty what this CLARITY Act wants to do. And when you combine it with prediction markets and what they’re doing, that makes it difficult to explain to Indian Country.”
Crowell said the regulation of cryptocurrency is needed there are good motives behind parts of the bill, but he fears the involvement of the CFTC, given how the agency has enabled prediction markets. “It advances the ball as it relates to prediction markets, sports wagering, and gaming. They are going to say that if this bill passes, it’ll be a reaffirmation of the CFTC and prediction market operators’ definition of swaps to where you couldn’t come up with a transaction that didn’t fit within the definition.”
Crowell said there are also provisions in the bill about federal preemption and the exclusive jurisdiction of the CFTC and Securities and Exchange Commission.
“The other side of that coin is the exclusion of states, tribes, tribal-state compacts, and 250 years of jurisprudence in the way tribes and states determine gaming policy as the exercise of their independence and sovereignty,” Crowell said. “My own opposition to the CLARITY Act is that it allows the CFTC and operators to double down on the position that they’ve already taken, which is that state and tribal law doesn’t matter.”
When it comes to ongoing litigation, Crowell said, “most everything is going fairly well” when it comes to battling prediction markets, including a court case in Wisconsin where the judge contends the operators are violating the Indian Gaming Regulatory Act by offering prediction markets on Indian lands.
One huge legal issue remains: A New Jersey federal district court decision has been affirmed by the Court of Appeals on behalf of prediction markets.
“If you are looking for a head count, the tribes and states are mounting victories in jurisdiction after jurisdiction and the efforts of the operators, even with the CFTC now filing their handful of lawsuits directly against the states, aren’t changing that equation,” Crowell said. “But it’s still going to come down to the nine justices on the Supreme Court and it’s difficult to see how it’s going to play out.”
The question will come down to whether Congress in 2010, in amending the Commodity Exchange Act, intended to allow sports wagering nationwide to be controlled by a federal agency, Crowell said. The Supreme Court ruled in 2018 that authorizing sports betting falls to the states rather than the federal government.
“This CLARITY Act seems to disregard all of that and try to federalize an area of policy that has been historically and exclusively reserved to states and tribes,” Crowell said. “The litigation is going well, but we’re not batting a thousand and we need to. If the CLARITY Act passes in its current form, it strengthens the hands of the CFTC and the operators in their arguments by not clarifying that swaps don’t mean sports betting or gaming. The CEA says that and the CFTC ignores that.”
Giles talked about President Donald Trump rallying people to support prediction markets and crypto regulation, from which his family stands to benefit.
“Everything is being rushed because of the midterm elections,” Rocha said. “According to prediction markets, Democrats are going to take the House back. Whether or not the Act gets passed, the political winds are to our advantage.”
Giles said the CLARITY Act would result in digital casinos, which is one of the messages they’re trying to convey to lawmakers.
Crowell cited a report that showed that a year ago, about $2 billion a month was wagered on prediction markets, and that has increased to $20 billion a month.
“The huge growth in this industry is the young man on his mobile phone,” Crowell said. “Make no mistake. If these operators and the CFTC get away with it, the tribes and traditional brick-and-mortar companies will lose the mobile space. State law, taxation, and regulatory controls and tribal law and revenue are out the window and tribal-state compacts are meaningless. We’ll end up trying to keep brick and mortar alive in a world that’s becoming increasingly digital without the tools to even enter into that market.”
