The Commodity Futures Trading Commission (CFTC) is reminding its licensed prediction markets that they operate as financial exchanges, not gambling platforms, and should refrain from presenting swap prices as betting odds.
In a notice first reported by Bloomberg, the federal regulatory body overseeing derivatives exchanges in the U.S. has instructed prediction markets to eliminate the presentation of sports contracts in “American-style” gambling odds. This letter emphasizes that these platforms must comply with all requirements stipulated in the Commodity Exchange Act (CEA).
As of early Friday afternoon, many prediction markets appeared to disregard the CFTC’s letter, according to a review by Casino.org. Platforms like DraftKings Predictions persisted in showcasing sports contracts similarly to sports bets, using run lines, moneylines, and over/unders for today’s MLB games displayed as +/- odds instead of share prices.
Defense of Sports Trading
The CFTC maintains its stance on permitting sports trading within prediction markets. The federal agency, backed by the White House, contends that the Commodity Exchange Act (CEA) endows it with exclusive oversight of sports event contracts.
The recent directive from the CFTC for prediction markets to cease showing contract prices as conventional sports betting odds is part of the regulator’s broader initiative to assert its authority amidst ongoing legal challenges. While the agency’s acronym stands for the Commodity Futures Trading Commission, the CFTC asserts that it also embodies its core principles: Commitment, Forward-Thinking, Teamwork, and Clarity.
According to CFTC officials, “Forward-thinking” encapsulates the agency’s commitment to staying proactive in its approach.
“When the CFTC was established in 1974 with the introduction of the Commodity Futures Trading Commission Act, much of the futures trading was centered around the agricultural sector. Over time, the futures industry has evolved to become more diverse and complex,” the CFTC website states.
The CFTC’s communication emphasizes that representing binary event contract outcomes as odds is prohibited.
For instance, in an event contract for “Will it rain tomorrow?” a prediction market must present contracts based on implied percentages, generally shown as cents of a dollar. A trader might find shares of “yes” it will rain priced at 10 cents.
The CFTC letter notes that certain prediction markets utilize gambling-like odds for pricing, wherein those weather shares priced at 10 cents could be depicted as +900 or 9/1.
Ongoing Legal Battles
The CFTC is currently involved in several federal and state lawsuits across the nation regarding its regulation of sports event contract trading.
State attorneys general and state gaming regulators argue that such trades should be classified as sports betting, a right reserved for the states, following the Supreme Court’s 2018 ruling that nullified the federal Professional and Amateur Sports Protection Act (PASPA).