The US Commodity Futures Trading Commission (CFTC) recently unveiled a comprehensive set of proposed rules for prediction markets, sparking a divided response from various stakeholders regarding the immediate consequences of these new guidelines. On Wednesday, the CFTC published its first notice of proposed rulemaking, marking a significant step in creating a regulatory framework for this rapidly expanding sector.
The detailed proposal establishes standards for how event contracts in prediction markets will be regulated. This new asset class is anticipated by some to exceed an annual trading volume of $1 trillion by 2030. Advocates of sports derivatives highlighted the economic opportunities that the proposed regulations could foster, while opponents expressed concerns that these federal regulations might infringe on states’ rights.
Approximately a day after the new guidelines were made public, CFTC Chairman Michael Selig appeared on Fox Business and informed host Maria Bartiromo that the agency aims to provide clarity on the types of sports products that would be “suitable for trading” across the United States. The proposed regulations were officially published in the federal register on Friday, initiating a 45-day period for public commentary.
The CFTC seeks to amend the so-called 'Special Rule' in light of the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted after the 2008 Financial Crisis. This regulation grants the CFTC the power to prohibit certain event contracts if deemed “contrary to the public interest.” Previously, Regulation 40.11 allowed the agency to restrict contracts related to sensitive subjects such as war, assassination, and gaming.
Under the new proposal, the definition of “gaming” will be refined. While the guidelines will prohibit some trades concerning officiating decisions and player injuries during games, they will continue to permit most sports-event contracts currently available. Gary Gensler, former CFTC chair during the Dodd-Frank passage, mentioned on CNBC that he does not recall discussing sports event contracts in relation to Dodd-Frank or the Commodity Exchange Act. He argued that regulation of sports wagering should reside with the states rather than the federal government, stating, "What they’re trying to do is to say that they have authority over sports betting, which I don’t think they do."
Key discussions among stakeholders will likely center around the 'public interest test.' The term “interest” appears 515 times throughout the proposal. Selig noted that when a Designated Contract Market self-certifies a contract, the CFTC will assess whether it goes against the public interest, a requisite outlined in the statute.
Peter Sanchez Guarda, former counsel at the CFTC, articulated concerns about the ambiguity of a broad public interest standard, suggesting that without a clear definition, regulatory compliance may become a challenge for Designated Contract Markets (DCMs).
The American Gaming Association, the Indian Gaming Association, and Gambling Is Not Investing have all voiced strong opposition to the proposed regulations. AGA President Bill Miller characterized the preliminary rules as a “remarkable attempt” to redefine sports betting. In contrast, Randall Boe, a former Arena Football League Commissioner, remarked that this regulatory framework could create significant new revenue streams for sports teams and leagues. Boe noted that the CFTC’s focus on prediction markets could enable the development of advanced platforms for investors wishing to hedge against sports-related risks.
In other news, ProphetX recently received approval from the CFTC to introduce sports event contracts on its new prediction market exchange, roughly eight months after submitting its application. The ProphetX platform features a proprietary Request for Quote (RFQ) parlay mechanism, allowing users to price multi-event combinations directly with trading partners. CEO Dean Sisun stated, “We can now expand our best-in-class sports event market offerings to millions of Americans across the country while competing on a level regulatory playing field.”
Several operators launched new tools or entered into partnerships during the week. ADI Predictstreet, which launched its prediction market platform on June 8, is now offering a co-branded World Cup Hub in collaboration with Fanatics Markets. As of Friday, Kalshi reported a trading volume of approximately $188.6 million on World Cup futures, with Spain and France jointly favored at 17%. The US team is set to play Paraguay in their World Cup opener on Friday.
This year's World Cup in North America is notable as it is the first time the event has returned to the US in over 30 years. Despite this, Kalshi indicated that 11 teams had better odds than the US, including host country Mexico at 2%. A $100 bet on the US winning the tournament could yield a payout of around $5,197.80.
