The fight over sports event contracts has been playing out for over a year now.
But lately, it seems that the subject has gained more attention on Capitol Hill.
Any potential ambiguity over sports event contracts could be solved by writing a law that, for example, clearly says that these types of contracts are not permitted on Commodity Futures Exchange Commission (CFTC)-regulated markets.
But it’s hard to get a vote on the calendar without the full support of majority leadership in one of the congressional chambers.
So maybe the best hope is to find a bill that is already on the calendar with a connection to the topic and convince legislators to consider an amendment clarifying that sports event contracts are illegal.
That at least appears to be what is happening. Both the tribal and commercial gaming industries have targeted two different topics under consideration by Congress — CFTC reauthorization and the crypto market structure bill — as potential avenues to get a sports event contract ban written into law.
CFTC appears to be a lost cause
Why are the efforts focused on legislation in the first place?
Partly because going to the CFTC looks to be a lost cause.
A little under a year ago, the gaming industry had hoped that an upcoming CFTC roundtable on sports event contracts would be an opportunity to explain why the contracts shouldn’t be allowed. But that roundtable never happened, though a smaller version with representatives from Indian Country did, and the takeaway was that the CFTC wouldn’t take any action. Since then, prediction markets have become more aggressive in their offering of sports event contracts.
American Gaming Association (AGA) Senior Vice President of Government Relations Chris Cylke told InGame that the trade group initially thought it could work with the CFTC.
“For the AGA, a year ago we were still figuring out how we approach this, and we thought sanity has to prevail at some point,” Cylke said. “We had the roundtable dangled before us, and then that never happened.
“It’s been one thing after another, and I think our strategy has been an iterative process.”
Members of Congress such as Nevada Rep. Dina Titus wrote to the CFTC with concerns about sports event contracts, but nothing of note came of those letters.
“We’re coming at this reluctantly from the point of view that we’ve tried other options to get some oversight: questions and bipartisan letters to the CFTC from members of Congress,” a commercial gaming industry source told InGame.
During a joint SEC-CFTC event last week, new CFTC Chairman Michael Selig made clear that the regulator was not an ally of the gaming industry on this subject. He said the CFTC would get involved in court cases to argue that sports event contracts should be legal.
“He’s [Selig] all in for prediction markets, particularly sports betting and political betting. I think it will be hard to stop that,” an industry source who has worked with both tribal and commercial gaming stakeholders told InGame.
Cylke notes that Selig’s recent comments represent a change from what he told the Senate Committee on Agriculture, Nutrition and Forestry when he was nominated to lead the CFTC.
“When he testified back in November, he was going to let the courts sort it out,” Cylke said. “Something has changed between then and now where they feel like they need to actively paper over the regulatory concerns around this issue.”
CFTC reauthorization
The idea of a sports event contract ban being attached to an upcoming bill crystalized in a House Agriculture Committee meeting about CFTC reauthorization, a process where Congress reviews, updates, and extends the budgetary authority and regulatory powers of the CFTC.
The AGA, Indian Gaming Association (IGA), and the NFL all saw the meeting as an opportunity to get sports event contracts on the agenda.
Rep. Gabe Vasquez of New Mexico was among those who questioned whether the CFTC should be regulating sports event contracts during the committee meeting. He said prediction market operators were “trying to get around” sports betting rules, and directly suggested that the committee should consider changing the law. Online sports betting is not live in New Mexico, but several tribes have in-person wagering available at their casinos.
“If online sports betting shifts into the CFTC’s purview, the traditional system gets bypassed, along with tribal compacts,” he said. “And that has an impact on tribal revenue, on tribal authority, and in rural New Mexico that has an impact on our schools, our communities.
“This committee has a responsibility to make sure that the CFTC is enforcing the laws Congress has passed and modify those that we understand are outside of the law, so as we discuss reauthorization I hope we continue to protect consumers and stand with tribes all across the country, not just in New Mexico.”
CFTC to write event contract rules
The growth of sports event contracts, Cylke notes, means that the regulatory powers of the CFTC have expanded to make it a federal sports betting regulator — reviewing whether that is appropriate would make sense, he says.
“The CFTC is a small agency and it’s gotten smaller,” Cylke said. “It has a big role that is important in helping our economy function, ensuring that farmers and ranchers have predictability, and now we’re talking about giving the CFTC a big new remit over crypto, which we don’t have a problem with as the AGA, but if they’re also a sports betting regulator that could interfere with its ability to perform its traditional function and its new functions.”
The source who has worked with the tribal and commercial sectors agrees.
“The CFTC is really not attempting to regulate these products,” he said.
The CFTC, for its part, may be making more of an effort to at least give off the impression that it regulates sports event contracts. During his speech last week, Selig said the regulator would write new rules for the product. Those rules might boost the legal argument that sports event contracts are under the CFTC’s remit.
Cylke is worried that the promise of new rules could convince Congress to avoid taking action.
“My main concern is that they’re going to try to use the CFTC doing this as a reason for Congress not getting involved, which we would vehemently disagree with,” he said.
“Whatever this rulemaking process is, we don’t want it to be cover for Congress to do nothing.”
Will reauthorization happen?
But CFTC reauthorization is not really a concrete event on the calendar. The actual act is essentially entirely symbolic — though it is usually accompanied by real changes — and it has no fixed schedule. The CFTC’s last reauthorization expired in 2013, but from a practical standpoint, that hasn’t hindered its ability to operate in any way.
“I think that is going to take some time to do,” the commercial gaming industry source said. “They haven’t reauthorized the agency in over a decade.
“We’ll certainly be engaged in that discussion but I don’t know if we’re banking on that being a foregone conclusion. It’s not like the national defense reauthorization that’s an annual process.”
The tribal source notes that reauthorization has appeared on Congress’ radar before without a bill actually being passed.
“Reauthorization is less clear timing-wise,” he said. “It’s something they’ve been trying to do for a long time.”
Former CFTC General Counsel Rob Schwartz was among those fielding questions about sports event contracts at the House Agricultural Committee hearing. He told InGame that despite the strong words of some congressmen on the topic, he did not believe a sports event contract ban would make its way into a reauthorization bill, whenever it comes.
“I’d be surprised if that was addressed in the reauthorization bill,” he said.
Still, if it does come up, the AGA will be sure to be heard.
“If the reauthorization process seems like a real thing, we’ll be engaged there,” Cylke said.
Is ‘Market Clarity’ amendment an option?
But until then, the main effort will be through a bill with a more clear time horizon: the cryptocurrency market structure bill, officially known as the Digital Asset Market Clarity Act.
That bill — at least at the moment — doesn’t directly concern event contracts, but it does involve CFTC regulated exchanges, so a connection is there. With some businesses, like Coinbase, Crypto.com, and Gemini, getting involved in both crypto and prediction markets, the link is even clearer.
“We see this as probably our last best opportunity because it has Congress’ interest, it has the White House’s interest,” the commercial gaming industry source said.
The AGA and IGA penned a joint letter calling on Congress to include an amendment to the bill that would make it clear that sports event contracts are illegal.
According to newsletter The Closing Line, the amendment would outline that, “No agreement, contract, or transaction relating to any Sporting Event or Athletic Competition or any Casino-Style Game may be listed or made available for clearing or trading on or through a registered entity.” The proposal includes additional definitions, to remove even the hint of ambiguity.
A tribal gaming industry source said it was important to include the casino gaming portion of the amendment.
“It’s sports now, but we see a future where if nothing is done it will expand into slots, table games, a roll of the dice,” he said.
Bill dominated by crypto-bank dispute
The process of passing the market structure bill has been a bit of a mess.
The Senate Banking Committee was scheduled to hold a markup meeting to consider amendments, but that was postponed after Coinbase came out in opposition to the bill. Coinbase’s opposition, mostly due to differences of opinion on interest payments for stablecoins (cryptocurrency that’s pegged to the dollar), sparked a back-and-forth dispute between the crypto industry and banks. Crypto exchanges want to be able to pay interest on stablecoins, but banks say that if this is allowed, the exchanges should face the same regulations that they do.
“We’re very aware of the fact that this crypto bill is a complex Rubik’s Cube of issues that have to be sorted out between the crypto industry and the banks,” the commercial industry source said.
On the one hand, that has made the whole process much more complex. But on the other, it has bought some time for opponents of sports event contracts to make their case to more legislators.
“The extra time has been valuable for us,” the source added. “We started with the Ag Committee, but have had a chance to go to more legislators.”
The partisan math
A key part of any legislative process is understanding the partisan math.
Democratic Party legislators appear more likely to back an amendment banning sports event contracts, but Republicans currently control both chambers.
Selig’s nomination to lead the CFTC was a party-line vote, with all Republicans in support and all Democrats opposed. Brian Quintenz, who was nominated before Selig, also appeared set for a party-line vote before lobbying from Gemini founders the Winklevoss twins ended his candidacy.
That means any amendment would likely need steadfast support from Democrats and votes from some Republicans.
“Our meetings with Republican offices, we hear a sympathetic tone with them, but they get caught up with the politics of Donald Trump Jr. being an advisor,” the commercial industry source said.
“But if we can get Democrats to stand firm, we can get some Republicans to stand up.”
Cylke says the bad press that prediction markets have faced of late — often related to non-sports contracts — has helped convince legislators that the exchanges need to be reined in somehow.
“There have been a lot of issues around prediction markets that have kind of thrust the issue into the spotlight,” he said.
“The whole self-certification of bets on the transfer portal, and then Maduro, even though it’s Polymarket offshore, the tension around the issue has really ratcheted up. So when we go into meetings with offices, this is on their radar, but not always in a sports context.”
Similarly, the tribal source says conversations with legislators may start with tribal sovereignty, but often expand into other topics.
“When I go in meetings, I go in with the tribal perspective, but many of the concerns are universal,” the source with tribal experience said. “It’s the lack of regulations to prevent insider trading, the lack of know-your-customer, the fact that you only have to be 18 and not 21, the fact that they’re advertising this as sports betting.”
But those lobbying for a sports event contract ban are not unopposed.
Kalshi, Crypto.com, Coinbase, Robinhood, and Underdog formed the Coalition for Prediction Markets (CPM) last year. In January, the CPM set up a D.C. office and hired two former members of Congress, as well as taking out a full-page ad in The Washington Post.
“We know that they’re lobbying as well,” the tribal source said. “They have expanded an office in D.C. but I see it as frankly our success has led to that.”
Time running out?
But time could be running out on market structure bill.
“I think there are opportunities, but in this environment, with Republicans in control, it’s moving very quickly to their advantage,” the source who has worked with both the tribal and commercial sectors said.
The Senate Agriculture Committee’s markup process came and went without adding a sports event contract amendment. That was one of the best opportunities to attach an amendment to the bill, but there are more chances — the Banking Committee’s markup, whenever it happens, will be one, and amendments can also be added on the Senate floor.
“We’re not closing the door to anything, but we’re also figuring out what the next steps might be,” the tribal source said.
The source said the issue wasn’t about opposition to the contents of the amendment, but instead that Republicans on the committee wanted the bill to just focus on crypto markets given the complexity in getting the core components over the line.
“This was a priority for the majority, a priority for both parties, but I think on the Republican side their perspective was that it wasn’t for this bill,” he said.
“I don’t think we’ve heard anybody say this is a good thing. There’s been a tremendous amount of education. But once that’s done we’ve never heard that this is a good thing.”
Appropriations another opportunity?
If an amendment to the market structure bill doesn’t happen, CFTC reauthorization isn’t the only other option. The gaming industry source said that the next appropriations bill could be an opportunity.
“There’s a whole chance this whole thing could implode because of other problems not related to our issues. If so, our next focus would be on appropriations,” he said.
“They’ll start doing hearings in the spring, and in an ideal world everything gets wrapped up by the end of the fiscal year on Sept. 30.”
But there’s one big problem: Appropriations bills never seem to operate in an “ideal world.”
“In recent times we’ve been operating on a continuing resolution, which doesn’t allow for the same kind of insertion of policy measures,” the source said.
Courts still the best hope?
It’s possible that any effort to get a sports event contract ban through Congress is a long shot. The opportunity on the market structure bill may be slipping away as Congress continues to focus mostly on the dispute between the crypto sector and the banks. A reauthorization timeline remains unclear, and a full appropriations bill — if one ever arrives — would involve plenty of disputes that would be much bigger issues for most voters than sports event contracts.
The courts, the source who has worked with both the tribal and commercial sectors said, remain the best option. A final decision from the judicial system won’t be quick — most experts expect some iteration of the bevy of court cases to eventually go to the Supreme Court, but it may not even take up the case until some point next year. Yet that may still be faster than expecting something from Congress.
“The best shot would be the courts,” the source who has worked with tribal and commercial stakeholders said. “Congress has historically been very behind.”
States and tribes are continuing to argue — in federal and state court — that sports event contracts are illegal. It’s hard to be sure which way judges will eventually rule.
Until then, the gaming worlds will at least make an effort at getting something into the law.
