A gaming attorney said the tide appears to be turning against sports betting prediction markets after a string of defeats and increased scrutiny.
Scott Crowell made his comments Wednesday while appearing on a webinar of the Indian Gaming Association ahead of next week’s annual conference in San Diego, where tribes fighting against prediction markets will be a key piece of the agenda.
Prediction markets are coming off a turbulent stretch in the U.S., with enforcement actions, legal challenges, and new legislative proposals all landing in the same week. Arizona filed criminal charges against Kalshi. On Friday, Nevada received a temporary restraining order against Kalshi operating in the state and other states are beginning to take a closer look.
“The core question is no longer whether these markets will face scrutiny, but how far that scrutiny will go and who ultimately has authority over them,” said IGA Conference Chair Victor Rocha, who hosted the webinar with IGA Executive Director Jason Giles. “The tide is turning and everyone is definitely awake to the threats.”
What’s startling, Rocha added, is that Kalshi is raising more money to bring the company to a $22 billion valuation in the middle of all of the controversy. Rocha said prediction market operators have convinced Wall Street that this is going forward.
“I think they’re trying to preserve themselves,” Crowell said in response to Rocha. “They’re trying to get to a point where they are too big to fail. Look at the partnerships with Major League Baseball and the NHL teams and an announcement they are retaining this company to help monitor our bets. Every time there’s bad press – trading with a 15-year-old or trading on the invasion of Iran or Venezuela – they come back with these patchworks to say we’re not going to let that happen again. What it really does is expose that they’re doing this without any type of regulation or oversight and simply reacting to what’s around them.”
Crowell called the Arizona filing of criminal charges “path breaking.” The state had been aggressive against what it calls illegal gambling by unregulated companies claiming they derive their authority from the Commodity Futures Trading Commission under the Commodity Exchange Act.
“I greatly applaud it,” Crowell said of the criminal charges. “I think it’s a terrific development. I agree with you that the tide appears to be turning, but it’s been this whack-a-mole.”
After a TRO was granted in Nevada for Kalshi to stop taking sports wagers, the company on Saturday halted accepting wagers from Nevada residents. Those who didn’t have a Nevada residency on their account, however, could still place wagers in the state.
As for criminal charges, Crowell said case law is different from civil enforcement. If there’s a conviction, the implications are greater if the companies want to enter a regulated market. “It will be interesting to watch, but a positive development in the right direction.”
Crowell said he expects the Kalshi defense will be to throw “anything and everything” against the state of Arizona for pursuing a criminal case. The same defenses in the civil arena will be raised by saying it’s preempted by the Commodity Exchange Act and that Arizona criminal laws have no effect. Kalshi may try to move it into federal court, he added.
“The states are finally pushing back on state’s rights,” Rocha said in response.
Only two civil cases across the country have gone in favor of prediction markets, one in Tennessee and the other in New Jersey.
“They got those two victories and we need to do what we can to get them reversed on appeal,” Crowell said. “The fact you have divergent opinions out there tells me this thing is going to be sitting in front of nine justices of the Supreme Court.”
Giles talked about three bills in the Senate and two in the House that would amend the CEA and halt sports betting and other types of wagers. Prediction market operators may say the courts should leave it up to Congress, he added.
Crowell agreed that operators may say, if this question of the current law is so clear, then why is Congress looking to clarify it? The CTFC is also discussing rule making on prediction markets and it may weigh in on letting them work on the process or for Congress to decide rather than the courts, he said.
Crowell said the argument by states should be for the judge to rule on the law as currently written and let the legislative aspect play out separately.
“It plays into Kalshi’s argument that maybe what the tribes and states are saying is clear isn’t so clear,” Crowell said.
Crowell said the reason “this is an existential threat” is that the younger generation is doing everything online. If they prevail with sports betting, then it will advance into slot machines, craps, roulette, and other traditional forms of gaming.
“They are unabashed about it,” Crowell said. “They say you can bet on anything and everything on our sites, including traditional casino games, sports betting, terror and war.”
The CFTC was “asleep at the switch” to let prediction markets proliferate and now is “awake at the switch” in associating with companies they are supposed to be stopping, Crowell said.
Rocha said prediction markets aren’t going to be beaten solely in the courts, but also politically and socially. Kalshi announced new rules of no insider trading for athletes and politicians after legislation was proposed in the Senate, he noted.
“They seem to be scrambling as people start to focus on insider trading, gambling addiction, and no mechanism for problem gaming,” Rocha said. “They talk about it, but they don’t do it. They say they’re doing it, so that you have to take them at their word.”
Crowell said once prediction markets are exposed for an issue that surfaces, they say they aren’t going to do that any longer. In comparison, the casino industry has strict oversight and regulation.
“Here you have no oversight, and the CTFC has no staff, no capability, no budget, and no expertise whatsoever to keep these kinds of things from happening,” Crowell said.
The CFTC is trying to do the same patchwork with rule making that the operators are doing in response to insider trading and other allegations. States and tribes are going to weigh in on that, he said.
“What it feeds into is the reality that their underlying premise is that somehow Congress in the Dodd Frank amendment in the CEA (in 2010) intended to completely wipe out state and tribal regulatory oversight to determine the public policy of gaming within their jurisdictions,” Crowell said of the CFTC actions.
“The fact that they’re trying to backfill into their structure the type of things that would have been included if Congress intended for that to be the result, it points out that their underlying premise is bogus.”
