CFTC Backtracks on its Support of Sports Prediction Markets

The Commodity Futures Trading Commission (CFTC) has been a silent ally of sports prediction markets, but that may be changing.

The CFTC issued a staff advisory note this week, which addressed sports prediction markets. While the note didn’t make a definitive statement on the industry, it did open the door for states to ban the controversial industry. According to a report by Dan Bernstein, the note states that the regulator has not actually signed off on prediction market operators and confirmed that they are not forcing operators to remain open in all 50 states.

The note was especially bad news for Kalshi. The industry leader is facing a pile of lawsuits from tribes and state regulators, but has brazenly begun to expand its offerings instead, leading to even more legal woes. The belief was that the CFTC would acquiesce to the White House’s support for the emerging industry, but that no longer seems to be the case.

Kalshi also saw one of its key legal arguments blow up in its face by the note. The operator has argued that the CFTC would penalize them if they stopped operating across all 50 states. With the CFTC publicly denying that, Kalshi loses a big part of its legal strategy.

The operator also lost a key ally when the White House withdrew its nomination of Brian Quintenz, a Kalshi board member, to lead the regulator. 

Note Comes Days After Sleeper Lawsuit

While the CFTC’s latest statements will be stealing the industry headlines, it isn’t the only prediction market story we are watching. 

Fantasy sports giant Sleeper filed a lawsuit against the CFTC for delaying their request to become a prediction market operator. While the National Futures Association (NFA) is ultimately responsible for approving Sleeper’s application, it alleges that the CFTC requested the review be delayed. 

Many operators, including FanDuel and Underdog, have been approved to begin offering prediction markets without issue. The regulator’s sudden decision to delay Sleeper’s application may be a sign that the time has come to an end. Given the mounting pressure from bipartisan groups of lawmakers, tribes, and the American public, it's not hard to understand why an understaffed CFTC is looking to cool the red-hot industry down.