The rise of prediction markets is drawing scrutiny from global lottery associations, prompting a call for stricter licensing and regulation for platforms offering these gaming-style contracts. On Tuesday, the North American Association of State and Provincial Lotteries (NASPL) released a statement characterizing prediction markets as a novel form of gambling that attempts to disguise its nature and undermines established policies by obscuring key distinctions.
In its critique, NASPL cited a position paper from the World Lottery Association (WLA) titled "Prediction Markets: Unlicensed Betting by Another Name – Threats to Sports Integrity, Consumer Protection, and the Lottery and Betting Sector." This document argues for treating prediction markets like state-sanctioned gambling products, irrespective of the labels assigned by operators or the Commodity Futures Trading Commission (CFTC).
The WLA highlights that even if lottery-equivalent event contracts capture just 5% of the annual global gross gaming revenue from the regulated lottery sector, it could lead to losses exceeding $2 billion for public-benefit initiatives worldwide.
"A common response from CFTC-sanctioned prediction market operators is that they already face regulation," the WLA stated, noting its membership includes 25 state lotteries. "However, authorization under a financial framework does not equate to holding a gambling license."
The WLA is firmly against the unregulated operation of prediction markets. In its recommendations to regulators and governments, the WLA advises:
1. Establishing a functional definition for sports betting and event wagering.
2. Mandating that all entities offering event contracts obtain appropriate gaming licenses.
3. Enforcing licensing requirements through mechanisms like geoblocking and legal actions.
4. Creating a framework for international cooperation to prevent prediction market platforms from exploiting weak regulatory areas.
"We urge all stakeholders to act swiftly, as the protection of consumers and sport integrity is paramount," the WLA concluded. "The regulated lottery and betting sector exists for public interest and cannot effectively serve this purpose while contending with an unlicensed and unregulated parallel industry, regardless of how innovative it may claim to be."
Regarding the potential for lottery-style prediction markets, the WLA's document points to the likelihood of these markets encroaching upon state-regulated gaming by offering contracts resembling lottery or casino games, which meet the definition of event contracts due to their clear and verifiable results.
"From a functional perspective, lottery draws align well with prediction market structures," the paper states, indicating that these offerings could be viewed as a natural expansion of existing predictions rather than a significant change in product design.
The association cautions that should lottery-style prediction markets gain traction, the financial consequences for WLA members and public-benefit initiatives would be "material and immediate," as these products could undermine lottery monopolies and divert spending from regulated channels in the U.S. and globally.
The WLA indicated that the current boom in prediction markets has increased tension between the financial trading sector, existing gambling regulations, and frameworks ensuring sports integrity. Both the WLA and NASPL stress that prompt regulatory action is necessary.
"The WLA calls for immediate alignment between gaming and financial market regulators to close gaps and ensure prediction markets adhere to the same licensing and consumer protection standards as conventional betting," the paper notes.
This rise of prediction markets has been described by the WLA as stemming from "deliberate regulatory arbitrage," a term echoing Rep. Jill Tokuda's remarks during a Congressional hearing on the issue. The WLA defines this as exploiting ambiguities in regulatory structures to evade compliance costs and restrictions.
NASPL reiterated that without proper regulatory frameworks for event contracts, the integrity of games will suffer, potentially endangering consumer protection and responsible gaming initiatives, while complicating law enforcement efforts against tax evasion, money laundering, and racketeering.
Both associations are calling for urgent regulatory clarification in jurisdictions where prediction markets currently operate or are planning to offer sports events or other contracts.
The WLA proposed applying a "functional" test to regulation. They assert that any product offering a financial return based on an event outcome—be it sports, politics, or otherwise—should be classified as a wager and thus must be licensed and regulated accordingly, regardless of the operator's chosen terminology.
The aim of these regulations is to ensure that gambling authorities expressly review and assess prediction market products for legal standing, focusing on closing regulatory gaps and ensuring equality in oversight for functionally similar products.
"Even if a jurisdiction categorizes such offerings as financial products, it is still crucial to enforce safeguards typical for gambling, given the parallel risks around consumer protection, integrity, and harm prevention," the WLA concluded.
