Indian Gaming Association (IGA) Chair David Z. Bean said exactly what many against prediction market sports event contracts were thinking Wednesday, though they may have been too polite to say it.
“It’s just the big middle finger,” Bean said of the proposed rules released by the Commodity Futures Trading Commission (CFTC). “Chair [Michael] Selig said he was going to wait for the courts to decide, but that’s not true.
“I’m not surprised. I’m definitely disappointed, but not surprised. We’ve still got work to do. We’re still pushing that snowball uphill.”
Bean’s comments on the New Normal tribal webinar were part of a chorus of anti-prediction voices that reacted with anger, frustration, and a renewed vigor to fight after the CFTC announced proposed rules that would put a framework around prediction markets and sports event contracts, which have been roiling the legal sports betting industry for more than a year. The plan was published seven weeks after a public comment period on an advanced notice of proposed rule making closed. About 1,500 comments were filed.
“We can’t be surprised,” IGA Executive Director Jason Giles said. “It’s a jam job. It’s corrupt. They blew past three or four different requirements with [Office of Management and Budget] complicity. They needed other agencies’ complicitness in order to jam this rule through in such an extremely short timeline with over 1,500 comments.
“You’re telling me that in [this short time], they looked at over 1,500 comments and made any substantive changes to the rule they already had in their back pocket written by the prediction markets and they’re just slapping together now?”
Giles said that major rules have to go through the Office of Information and Regulatory Affairs before being evaluated for economic impact. And if “it’s declared a major rule, they have to engage in some more consultation, and some more justification. … Clearly, this is a major rule that is affecting billions of dollars and it’s not even a question that it’s a major rule.”
Despite that, Giles said, the OMB under Director Russ Vought just “said it’s not a major rule. … This whole thing just shows you they [CFTC] don’t care about being sued, they are going to violate at least three or four provisions of the Administrative Procedure Act.”
The proposal that was published Wednesday states that the agency believes that most sports event contracts — which the legal sports betting industry argues mimic their heavily state-regulated product — will be in the mix. It would essentially codify an existing rule and the Commodity Exchange Act (CEA) language banning contracts on war, terrorism, and assassination — but not gaming, which is also named in the CEA and CFTC Rule 40.11.
The CFTC’s proposed rule hinges on the definition of the words “involve” and “gaming.” The proposed rule, in defining gaming, states, “The coherent reading is the one the ordinary meaning of the word naturally supplies: gaming is the game itself.”
Better Markets: Much wrong with process
The CFTC, like many other federal agencies, is proposing its rule change via an “informal” process, which means that it must publish a notice of the proposed change and take public comments for at least 30 days. The agency Wednesday opened a 90-day public comment window. In theory, per the Administrative Procedures Act (APA), the agency should consider and integrate some public comments into the new rule before publishing it in the Federal Register.
“After consideration of the relevant matter presented, the agency shall incorporate in the rules adopted a concise general statement of their basis and purpose,” reads the law.
The informal rule-making process does not indicate a specific amount of time an agency must spend considering comments for an advanced notice of proposed rule making. But in early May, ahead of the release of the proposed rule, Better Markets COO Amanda Fischer said that per the APA, government agencies are “supposed to earnestly listen to comments” before revealing or considering further action. It is the short window between the end of the comment period and the proposal of the rule that caused Giles to question how seriously the CFTC is taking the process.
While many of the comments on the advanced notice of proposed rule making declared opposition to allowing sports event contracts, Fischer last month suggested that the agency is “not following that whole process” and that the CFTC had already determined its path forward.
“It’s really clear that the CFTC has already arrived at their answer and is retrofitting the answer to what they have already decided,” she said in May. “They are doing this backwards.”
Wednesday, Better Markets, an independent, non-partisan group whose mission statement is to “fight to de-rig the economy, bringing the voices of Main Street Americans to the halls of power to resist extractive systems,” again came out against the CFTC’s plan.
“Today’s action cements the CFTC’s role as the prediction market industry’s biggest cheerleader,” Better Markets Director of Securities Policy Benjamin Schiffrin wrote. He pointed to surveys from the American Gaming Association (AGA), Gambling Is Not Investing (GINI), and the American Institute for Boys and Men as proof that the general public “views event contracts on sporting events as gambling.”
“This proposal moves the CFTC further away from its core mission of ensuring Americans receive fair prices for essential goods such as food, gas, and electricity, further distracts the CFTC from focusing on financial stability and preventing a financial crisis, and further blurs the line between legitimate financial markets and gambling,” he wrote.
‘Congress never intended’ this
The AGA and GINI also released statements:
From AGA CEO Bill Miller: “This is a remarkable attempt to redefine what constitutes sports betting. It makes a mockery of congressional intent while going against a bipartisan coalition of 41 Attorneys General, countless legislators across the country, and the 81% of voters who recognize that the so-called ‘prediction markets’ are backdoor sportsbooks evading state and tribal law.
“The consequences are real. Prediction markets’ evasion of state and tribal laws is estimated to have already cost communities across the country more than $1 billion in sports betting tax revenue, hurting critical local projects.”
From GINI Executive Director Mick Mulvaney: “Now the CFTC wants to supplant state and tribal law and anoint itself a national gaming regulator, allowing companies to simply route sports betting through federal commodities law and avoid the rules. … The CFTC was created to oversee commodity markets, not to become the nation’s sports betting regulator. Congress never intended for federal derivatives law to become a backdoor for unsafe sports gambling.
“This proposal deserves serious scrutiny from lawmakers, state officials, tribes, sports leagues, and anyone concerned about preserving the integrity of our gambling laws. A sports bet doesn’t stop being a sports bet just because you call it a contract.”
Shift in tax dollars could be severe
On Monday, the Tax Policy Center, a non-partisan Washington, D.C. think tank, published an article highlighting how the rise of prediction markets threatens state tax revenue. New York, per the story, could lose between $13 million-$130 million in tax revenue, if 1%-10%, respectively, of sports betting revenue shifts to prediction markets. The hit would likely not be as acute in other states, as New York has the biggest volume and a 51% tax rate.
In the eight years since PASPA made legal sports betting a states’ rights issue, more than 30 states and dozens of tribes have benefited. States collect between 6.75%-51% tax on adjusted gross revenue while tribes collect revenue or share in profits with operators. In either case, it’s starting to become apparent that states and tribes are losing revenue to prediction markets. Anecdotally, Giles said Wednesday that he’s heard from tribes that sports betting and casino revenue are down from tribes across the country.
“These losses matter not just because of their size but their effects on budget flexibility,” Lucy Dadayan wrote. “As one state budget director put it, ‘The most important million is the last million in doing budgets.’
“The broader lesson is familiar to state budgeters everywhere: Economic activity often moves faster than tax systems. Prediction markets are just the latest example.”
Tribes: Predictions erode tribal sovereignty
Tribes have consistently contended that prediction markets are the start of the undoing of what the 1988 Indian Regulatory Act sought to create — tribal sovereignty. Kalshi and others offering prediction markets argue that they are federally regulated and have the right — in fact, are mandated — to offer their products across the U.S. But under IGRA, Congress gave Indian Country the clear right to control gaming on tribal land. Giles pointed to how the rise of prediction markets has created a constitutional “showdown” between the 10th Amendment and PASPA.
The erosion of tribal sovereignty is a key concern. Indian Country sees the net result of prediction markets siphoning revenue from any kind of tribal gaming as fewer dollars available for vital services, including education, elder care, emergency services, and more. Giles said, “No one has really grasped yet what the economic impact of this will be at the state level … but the economic fallout will come fairly shortly.”
New Normal host Victor Rocha said that unlike in retail gaming, with prediction markets “the big issue is that not a lot of us are online, and that’s where the next big battle is. Kalshi isn’t going to say, ‘I’m going to open a casino next to you.’ They are saying, ‘We are going to take all of the sky above you.’ They’re not talking about the land, they are talking about the sun, the sky, the clouds … so that’s what we’re dealing with.
“And we’ll just keep fighting. It’s what we do.”
