Prediction market platforms run by Kalshi and Crypto.com came under intense questioning for two hours at a U.S. Senate Commerce Committee hearing, including scrutiny of the platforms’ advertising practices, regulatory disputes and the cheating they may encourage.
“We want athletes to compete on merit, but the opportunity to make money may attract gamblers – and sometimes even the athletes themselves – to guarantee a certain bet,” Sen. Ted Cruz, R-Texas, the committee chairman, said at Wednesday’s hearing. He said high-profile cases of player cheating “sow doubt in the minds of fans.”
Cruz mentioned a number of recent cases, saying: “NBA players and coaches have been accused of manipulating performances and providing inside information to win bets. Two Major League Baseball pitchers allegedly rigged their pitches in exchange for money. [Major League Soccer] Two players were suspended for deliberately receiving yellow cards to win bets, and the UFC canceled the fight and terminated their contracts for alleged match-fixing. “
“As fans scrolled through Twitter on Sunday afternoons in the fall, they often saw posts speculating that officials’ controversial calls were related to gambling,” Cruz said.
Other lawmakers have focused on marketing that promotes problem gambling or affects young people who should be discouraged from gambling. Sen. John Hickenlooper, D-Colorado, accused prediction market companies of unleashing “hounds of hell” on social media and marketing to “prey on our young people.”
Patrick McHenry, a prominent member of the House of Representatives until his recent retirement, is now an advisor to the Prediction Markets Alliance representing companies such as Kalshi, Crypto.com, Robinhood, Coinbase and others. People under 18 are not allowed to trade, and the average age of users is 33, he said.
problem gambler
Harry Levant, director of gambling policy at the Public Health Advocacy Institute, testified Wednesday, telling lawmakers that he was a recovering gambling addict and lamented the “vast amount of unregulated advertising” from prediction market companies.
“It’s a notoriously addictive product, just like heroin,” he said.
Earlier this week, Kalshi co-founder and CEO Tarek Mansour posted on social media site “As retail participation in the market increases, we have a responsibility to balance free markets and personal responsibility with customer education and safety guardrails,” he wrote.
Other lawmakers on Wednesday delved into the fast-growing industry’s efforts to circumvent state regulators and compete with regulated gaming on U.S. tribal lands, where revenue is a core underpinning to the financial health of tribal reservations.
CFTC
Even as senators are keeping a close eye on the event contracting space, the Commodity Futures Trading Commission, which regulates derivatives trading platforms, filed a lawsuit on Tuesday to block a new Minnesota law that would make prediction market activity illegal. Regulators add this to a growing list of lawsuits filed by federal agencies against states seeking to restrict prediction markets or declare them in violation of state gambling laws.
“This Minnesota law turns legitimate operators and participants in prediction markets into felons overnight,” CFTC Chairman Mike Selig said in a statement, adding that the lawsuit follows similar agency lawsuits against Arizona, Connecticut, Illinois and New York.
Selig has led an agency legal campaign to defend his agency’s authority to oversee and regulate prediction markets, which are managed on registered platforms under Commodity Futures Trading Commission rules. Meanwhile, his agency — of which he is the only member on a five-member committee — is also seeking a formal rule that would create standards tailored to the industry.
On Wednesday, McHenry defended the CFTC’s role.
“The CFTC, as a patrol officer, has the ability to police this market, just as they do with the broader commodities markets that they have been around and are familiar with for decades,” McHenry said.
Senator Hickenlooper responded: “You are the first person to tell me that you think the CFTC meets the standards.”
One of the witnesses, Bill Miller, president and CEO of the American Gaming Association, argued that federal regulators are “absolutely ill-equipped to deal with this, and number two, they’re absolutely hurting tribes and states economically.” He added, “Congress never intended to create a federal gambling division through the CFTC.”
McHenry argued that these event contracts were derivatives and a “fundamentally different business model” than betting by gambling enterprises. He equated them to long-term regulated grain futures contracts, adding, “Our member companies have more enhanced monitoring than any casino and sportsbook in the country.”
Finally, Chairman Cruz said, “The Supreme Court may have to rule on this issue.”
