The Pennsylvania Gaming Control Board (PGCB) has explained to the Commodity Futures Trading Commission (CFTC) why it believes the CFTC should not permit futures contracts on sporting events. Companies like Kalshi and Robinhood have begun offering markets for such contracts this year. The PGCB had planned to testify at a CFTC roundtable on April 30 but wrote the letter after the CFTC cancelled the event with minimal explanation..
Predictions markets have been extremely controversial across the US. Several states, including neighboring New Jersey, have issued cease-and-desist letters to predictions operators. Pennsylvania has not taken action as of yet.
The PGCB sent a 13-page document highlighting the threats sports contracts pose to individuals in the state, which already has access to legal sports betting.
Concerns with jurisdictional confusion, sports integrity
Predictions markets are contracts that allow traders to hedge on real-world events, and can trade the contract prior to the expiration date, similar to the stock market. Operators, such as Kalshi and Robinhood, received approval from the CFTC to offer sports contracts, which began during the Super Bowl and March Madness.
The PGCB’s letter discusses the potential harm predictions markets can cause, and why it believes the CFTC is not the right agency to regulate such products. Since its usual focus is financial products, the CFTC might not be well-equipped to monitor sports-related products for potential game integrity issues.
An important excerpt reads:
“The introduction of sports prediction markets operating under purported federal oversight poses a direct threat to the comprehensive regulatory system Pennsylvania – and many other state jurisdictions – have meticulously constructed for gaming, including sports wagering.
“With all due respect to this body, it would take years for the CFTC to create the regulatory system and oversight that state gaming authorities have in place and, were you to do that, it would create a redundancy to something that already exists and works exceptionally well. …
“It would be our hope that the CFTC would continue to oversee futures markets, of which “sports events” should not apply, and allow state gaming regulators to regulate state gaming markets, of which sports wagering is expressly included as our respective enabling legislation provides for.”
The PGCB also raises jurisdictional concerns, pointing out the conflicts and confusion that could result from sports betting being regulated at the state level, while a similar but distinct product is regulated federally.
Sports betting operators face many regulatory requirements, which include thorough background investigations, licensing fees, state taxation on gross gaming revenue, and mandatory compliance with detailed rules providing consumer protections, responsible gaming provisions and more.
The PGCB argues that predictions markets involving sports contracts “sidestep these crucial state-level requirements,” which creates an “uneven playing field.”
It also said that PGCB is a financial market regulator that lacks “the specific expertise and historical mandate for overseeing consumer gambling activities.”
Pennsylvania chooses not to take action
There have been several states that have attempted to shut down predictions markets. Nevada and New Jersey have had notable disputes already.
The Keystone State has decided not to issue a cease-and-desist order, likely because of the results in the aforementioned states.
Nevada and New Jersey did take action, however, and it has not gone their way so far, legally. Kalshi won a preliminary injunction in each state, which means it can continue to operate.
Since predictions markets are regulated at the federal level, it is above state law. The PGCB warned the CFTC about those potential risks, stating:
“This assertion creates an immediate and significant conflict regarding regulatory authority, pitting federal derivatives law against other federal laws and Pennsylvania’s established power to regulate gambling activities within its borders (and, importantly, criminalize illegal gambling).
“This threat obviously manifests through challenges to state sovereignty and creates a complex federalism dilemma.”
Kalshi winning preliminary injunctions in Nevada and New Jersey certainly bodes well for predictions markets in future legal disputes. The Michigan Gaming Control Board (MGCB), an aggressive regulatory body, also did not issue a cease-and-desist letter to Kalshi.
The PGCB took followed the route of the MGCB by submitting concerns to the CFTC. This certainly won’t be the end of predictions markets involving sports contracts.
