The decision by the Commodity Futures Trading Commission (CFTC) to advance a regulatory overhaul of prediction markets late last Friday did not come as a surprise to Nevada’s top gaming regulator.
“Definitely, this is the next step that they have taken to try and continue to do what they can, and by they, I mean the CFTC, which has clearly been working in lock step with the DCMs (Designated Contract Markets),” said Nevada Gaming Control Board (NGCB) Chairman Mike Dreitzer.
Dreitzer said he wasn’t surprised by CFTC’s decision. The federal agency issued two proposals that would formally define event contracts as “swaps” under federal law, while prohibiting traditional gambling. The first proposed rule would expand the definition of “swap” to include event contracts, including those tied to cultural events, weather, politics, and sports. The second, an interim final rule effective upon publication in the Federal Register, confirms the agency’s longstanding position that casino-style gambling, including sportsbook wagers and casino games, are excluded from the swap definition.
On the same day the CFTC moved to change its definition of a swap, Kalshi filed for a rehearing in the U.S. Court of Appeals for the Sixth Circuit in a case it lost to Ohio and Tennessee regulators. The court unanimously ruled against Kalshi, finding prediction markets are not exempt from state gambling regulations, including taxes.
“I think what they’ve created is an untenable distinction without a difference,” Dreitzer said Wednesday during the Indian Gaming Association’s (IGA) weekly webinar. He was joined for the hour-long discussion by Scott Crowell, Crowell Law Office, Tribal Advocacy Group, Victor Rocha, IGA’s conference chairman, and IGA Executive Director Jason Giles.
Dreitzer explained that what the CFTC’s rulemaking would have everyone believe is that a $10 bet on the New York Giants at an online sportsbook is different from a $10 sports-event contract.
“I think it’s important to understand, in a very detailed way, what their claims are and why they make no sense,” Dreitzer said. “The first claim is, of course, that they’re different. From our perspective, the same exact thing.”
Dreitzer, a lawyer and former top executive with Gaming Arts and Ainsworth Game Technology, stressed that anyone looking at this with common sense knows they’re the exact same thing.
He explained that prediction market claims that they’re peer to peer and not gambling are nonsense, but in his view, those claims “don’t get refuted enough.” Dreitzer cited poker, horse racing, lottery, bingo, and sports betting exchanges as examples of peer to peer, but the notion that these are not gambling is completely inaccurate.
The other piece related to this, Dreitzer said, is this isn’t peer to peer, but hedge funds or other DCMs on the other side of the casual bettor.
“As a result, they’re knocking the socks off the casual bettor,” he said. “That’s just flat what’s happening. And secondly, they say that, well … this enables them to have price discovery, because it’s peer to peer.”
Dreitzer made it clear that the only price they’re discovering is the “maximum amount they can gouge … casual bettors on their DCM.”
“The point is that that’s complete nonsense. And in some cases, not only is it a hedge fund, it’s the exact DCM creating a third-party company to be on the other side. They call that liquidity and market making. I call that being a bookie,” Dreitzer added.
Dreitzer also took issue with Kalshi and other prediction market operators and their claims that they’re different, because when it comes to the exchange, you can get in and out of a position. But he said online sportsbooks have had cash-in cash-out forever. “That doesn’t make it different. It’s still sports betting.”
Dreitzer expressed frustration when “certain individuals who speak on certain networks” are not questioned when they say prediction markets are different, we’re peer to peer, we allow for price discover, we get you in and out of a position, and don’t ban people like online sportsbooks.
“That’s pure nonsense,” Dreitzer said. “And those, in my view, are the fundamental sort of arguments they make about why you’re telling me that I’m looking at two apples, but they’re trying to gaslight me and convince me one of the apples is a banana.”
