No hiding place: A Senate subcommittee on Wednesday scrutinized the growth of sports betting and sports integrity, but senators spent most of the hearing on prediction markets, questioning whether they are, in fact, just sportsbooks.

• The rise in popularity of prediction markets has prompted multiple bills in Congress aimed at tightening oversight.

Marsha, my dear: Senator Marsha Blackburn, a Republican from Tennessee and chair of the Senate Subcommittee on Consumer Protection, Technology and Data Privacy, claimed Americans are now more exposed to sports betting because of the rise of prediction markets.

• She admitted during the hearing that prediction markets “represent financial innovation across many sectors.”
• But the nature of sports event contracts has sparked “real concerns that they function mostly like traditional sports betting without the enforcement of state regulators, attorney generals.”

In the looper: Prediction markets drew widespread criticism during the two-hour hearing, including concern over their advertising practices, regulatory disputes and threats to national security.

• Senator John Hickenlooper, a Democrat from Colorado, said in his opening remarks that prediction markets “pose the same risks to consumers as online sports betting.”
• This despite its proponents claiming they are investments and not subject to state or tribal gambling laws.
• “This workaround is merely a way for prediction markets to skirt state consumer protection laws,” he added.

Act of war: Concerns extended beyond sports, as lawmakers expressed concern over wagers placed on prediction markets concerning US military operations in Venezuela and Iran.

• Patrick McHenry, senior advisor with The Coalition for Prediction Markets, assured lawmakers that Kalshi and other companies he represents believe contracts on war and assassination are illegal and “not in the public interest.”

Texas fold’em: The hearing marked the first time prediction markets were discussed along with regulated sports betting in a congressional hearing. Should Congress pass legislation restricting sports event contracts, users in states – such as Texas, Utah and Georgia – without legal sports betting would lose access to prediction markets.

• Texas Republican Senator Ted Cruz argued that sports events contracts are “for all intent and purposes, sports bets.”
• The hearing, Cruz said, was not about “rolling back legalized gambling in states that have chosen to offer it,” but to “preserve the integrity and authenticity in sports.”

Back door man: Bill Miller, president and CEO of the American Gaming Association, testified that the legal gaming industry operates under strict rules regarding age verification, AML compliance, advertising standards, integrity monitoring and flagging suspicious activity.

• Prediction markets “don’t comply with most of these important regulatory protections, and they allow 18-year-old teenagers to bet on sports,” Miller said.
• He also warned that the gaming integrity frameworks were being undermined by so-called prediction markets that are evading state, local and tribal authorities, costing $1bn in tax revenue.
• “These so-called prediction markets are deceptively calling sports betting, financial contracts and investing,” Miller added.
• “Despite messaging designed to beguile policymakers and the public, they are increasingly being exposed as back door sports-betting operations.”
• Miller called for states to regulate sports event contracts, arguing that these platforms “jeopardize the integrity of sports.”

Regulatory debate: “Prediction markets, aided by a rogue Commodity Futures Trading Commission, are making a mockery of congressional intent,” Miller said. “The prediction markets are running national sportsbooks, and it’s time to hold them accountable in the same way we are.”

• McHenry stressed that casinos and sportsbooks and prediction markets are fundamentally different products, and subject to different regulatory structures. “Conflating the two does little to advance our shared goal of protecting consumers,” he said.

On the beat: He also defended the Commission’s regulatory role. “The CFTC, as the cop on the beat, has the capacity to oversee this market, just as they’ve done with the broader commodities marketplace that’s been around and well versed for decades,” he told lawmakers.

It’s the first I’ve heard of it: Hickenlooper responded: “You’re the first person who’s told me you think the CFTC is up to the standards.” He noted that 90% of the trades on Kalshi and 40% on Polymarket are on sports event contracts.

• Miller was blunt in his assessment of the CFTC, saying federal regulators “are absolutely not competent to handle this.”
• “It was never Congress’s intent to create a federal department of gambling through the CFTC,” he said.
• The hearing did not result in any new legislative proposals.
• However, Blackburn said it allows lawmakers “to start to build to where we have to move in regulation and also looking at the system to what should be federal and what should be state.”

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