The Commodities Futures Trading Commission June 10 issued a 267-page document that paves the way for companies such as Kalshi and Polymarket to offer sports betting.
During Thursday’s session “Prediction Markets: A Question of Compliance and Integrity” at SBC Summit Americas in Fort Lauderdale, one panelist made sure the audience knew where he stood.
“These rules, they’re not etched in stone. They’re proposed rules,” said Daniel Wallach of Wallach Legal of the document. “And at the end of the 45-day comment period, ultimately after they’re finalized, we’re going to see legal challenges galore from states and tribes.
“You have to understand these rules are not written by neutral objective people. Mike Selig, who’s essentially the commodities-law version of Stephen Miller, is taking his marching orders from special interests with a stake in the success of the sports prediction markets,” Wallach said, noting Donald Trump Jr.’s role as a strategic advisor with Kalshi.
According to David Aron, special counsel for Lowenstein Sandler, Selig has made it clear where he stands.
“The chairman’s been quite clear that he’s in favor of these markets and wants to help them thrive,” Aron said. “When you have chairmen of different parties at different times, they obviously have different policy approaches. So it’s pretty obvious with the policy approaches here, which is we regulate these, we interpret the law as giving us this discretion to decide whether it’s against the public interest.”
Aron said the public interest should include whether or not “wagering” (Kalshi and others call it “contracts”) is harming individuals, particularly young people. But the CFTC document does not address this.
“There is no mention whatsoever of how to oversee the way that these products are being marketed to young people on social media,” said Jessica Welman, responsible gambling advocate with Doura-Schwohl Consulting. “I’ve seen these presented as legitimate ways of making an income. These sort of framings — and I understand that wasn’t necessarily the purpose of this — is the largest outstanding question around these prediction markets. Regulated gaming has specific rules around who you advertise to and how you advertise.
“These platforms don’t age-gate 18- to 20-year-olds. They say, ‘Come on board. This is investing. Intermingle it with your stocks and bonds and make it part of your overall investment portfolio,’” Wallach said. “These 18- to 20-year-olds don’t receive one iota of the responsible-gambling protocols and protections enshrined in the laws of at least 35 states.”
Another issue with prediction markets is that some things that are contracted can be manipulated.
Jeff Bell, Eventus President and Chief Operating Officer, said the way people think about insider trading in a prediction market is completely different than equities.
“You’re very focused on what was the percentage move, how much money did they make, and was there significant news that they might have traded in front of, and when you put those three together, you find some targets,” Bell said. “Then you do a little diligence on whether or not it meets the pattern or the activity of the individual account, and that helps you to know whether to dig deeper.
“Think about what we’re dealing with here. There’s not coverage, news coverage, media coverage on every little thing that happens in the world,” Bell said, noting that someone could encourage President Trump to say something, then take out a contract on him doing so and make money.
Bell added that CFTC document does provide clarity for what the agency will allow.
“We’ve been asking for and needing regulation in this area, so the rules of the road are clearer,” Bell said. “Did it go far enough? No, but will it eventually? Yes. It’s an evolving marketplace. I think we’ll see things improve over time. I know the CFTC takes those comment letters seriously. They’re going to think about it. Whether it’s this election or the next one, there will be a change in administration and things will evolve over time.”
