CFTC Challenges State Gaming Regulators to Litigate Prediction Markets
The Chairman of the Commodity Futures Trading Commission has suggested that state gaming commissions should be suing the CFTC rather than the prediction markets licensed under his agency’s federal authority, a stance that could also impact the broader landscape of offshore sportsbooks for U.S. players.
On Second Thought…
It wasn’t long ago that newly installed CFTC Chairman Michael Selig suggested he would remain neutral vis-à-vis prediction markets and their ability to offer sports event contracts throughout the nation. During his nomination hearings, Selig was pointedly asked about how he would handle the vexing issue that has caused an avalanche of legal battles between the prediction markets and state gaming regulators.
“As someone who spent many years practicing law at law firms as well as studying the law in law school, these are complex issues as to the interpretation of what it means to constitute gaming,” Selig said. “And, of course, I have the utmost respect for our judges working on these issues in our court system, and I intend to always adhere to the law and follow what judicial decisions tell me to follow.”
Selig’s neutrality paved the way for his confirmation, but it’s reasonable to conclude that he either fabricated his testimony or underwent a remarkable change of heart. The CFTC chairman has become increasingly vocal in his support for prediction markets and their ability to operate with impunity because they are licensees of a federal agency whose authority supersedes state gaming commissions.
Itching for a Fight
State gaming regulators and many attorneys general have issued cease-and-desist letters to major prediction markets such as Kalshi, Polymarket, and Crypto.com. The companies targeted have fired back with their own legal arguments and won many of the early legal battles.
However, recently, the state commissions have won a few rounds, which has kept the question unanswered as to whether the CFTC’s authority takes precedence over the states’ gaming regulators and their sports betting framework.
Prediction markets avoid paying state taxes and are slowly eroding the market share of sportsbooks that do. Thus, the fewer dollars generated for the sportsbooks, the lower the tax revenue for the states. This is the primary reason why state regulators are chagrined at the prediction markets and are responsible for the legal battles that have been waged.
However, Selig has now gone from sitting on the sidelines to becoming the star quarterback for Team Prediction Market. Selig recently testified that states should be suing the CFTC and not the prediction markets.
“The concern is, when states start suing our registrants, this is not the right fight,” Selig said. “The fight is with us.”
“And that just wastes your own state’s taxpayer dollars in suing participants that are complying with federal law,” he said. “So if you want to fight with us, we’ll fight with you in court, but the real work should be done in the policy spectrum. Come in and comment, and we’ll work with you all to get the policy right.”
But Democratic Congressman Gabe Vasquez of New Mexico showed betting lines from a prediction market and a sportsbook for a recent MLB game. He asked the commissioner if he could discern the difference between the two.
Selig conceded he couldn’t and asked Vasquez to “enlighten him.”
The Congressman said that Selig made his point, stating, “Because the average consumer also can’t tell. Here you see that the results from the prediction market and the state-regulated gaming entity, and the lines that are put on these sports bets, aren’t much of a difference, yet they are regulated completely differently.”
