Opening salvo: The Commodity Futures Trading Commission (CFTC) has proposed a sweeping new rulebook for prediction markets that would largely preserve the federal route for most game-outcome and team-performance markets while barring just some sports-related event contracts.

Four horsemen: In a 267-page notice issued on Wednesday that set gambling social media ablaze, the agency said contracts involving war, assassinations and terrorismwould be prohibited.

• Meanwhile, contracts tied to officiating decisions, player injuries, physical altercations, youth sports and many discrete player-action markets are also likely “to be found to be contrary to the public interest.”
• As the CFTC takes public comment for 45 days before moving to final rules, gambling sector voices urged the industry to speak up.
• “Anyone in gaming who stays quiet is choosing the outcome,” said longtime Nevada bookie Robert Walker. “This is a sportsbook wrapped in a derivatives contract.”

A mockery of a sham: The American Gaming Association (AGA) was quick to condemn the new rules, saying they were a “remarkable attempt to redefine what constitutes sports betting” and made a “mockery” of congressional intent.

• The AGA repeated its claim that in evading state and tribal gaming laws, prediction markets were costing state coffers over $1bn in taxes.

Same, same, but different: Officials have tried to separate outcome-based markets the CFTC still views as potentially legitimate and narrower contracts where information may be concentrated in a few hands or the event is especially vulnerable to manipulation.

“The Commission believes that event contracts are more likely to be contrary to the public interest when any meaningful information about whether the underlying event will occur is unavailable to the broader market,” the proposal states.

• “This includes events that are entirely random or where insight into the underlying event is highly concentrated.”
• Such concerns have already been raised by the NBA and NFL, both of which have urged tighter limits on injury, officiating and other high-risk markets.
• But the CFTC also mounted a detailed defence of broader sports contracts, arguing teams are “economic enterprises” and that sporting event contracts can carry public utility beyond simple wagering.

I light my own fires now: Outside what it might ban, legal experts noted the agency used the proposals to claim jurisdictional ownership of the regulation. Analysts at Stifel said the notice is fully consistent with the current CFTC administration’s earlier amicus briefs, maintaining that the Commodity Exchange Act preempts state gambling law for sports event contracts and that any carve-outs are for Congress, not states, to create.

• States and gaming regulators have been locked in battle with the platforms over whether sports-style contracts are to be bound by federal market law or, as Stifel noted, the CFTC is “trying to hide an elephant in a mousehole.”
• The Stifel team said the proposal was only the CFTC’s interpretation and the legality question will be settled by courts, with the Supreme Court still the likeliest final stop.
• “For the first time, the federal government has attempted to define ‘gaming’ as a legal category, distinguishing games from contests, financial indicators, elections, awards and other real-world events,” added Ifrah Law’s Avner Kronisch.

A game we shouldn’t play: The CFTC is also seeking broad jurisdictional claims on tribal lands, legal experts noted, despite the agency claiming it will engage with and seek feedback from tribes rather than volunteer any geofencing.

• The agency is doubling down on its view that the Indian Gaming Regulatory Act does not lock event contracts out of tribal territory, even as tribal plaintiffs continue to test that argument in court.

Advocacy group Better Markets attacked the proposal as too permissive, saying: “The CFTC continues to act as the prediction markets industry’s biggest cheerleader. The CFTC’s new proposed rules would allow prediction markets to continue enabling gambling on just about anything under the guise that they are financial derivatives.”

• The next fight may be less about baseline legality and more about retail supervision, said Alex Truitt of Stevens & Lee.
• He suggested harder questions would concern “risk management, surveillance, customer protections, supervisory controls and written supervisory procedures” once the products are marketed to ordinary users.

Prophet of cheer: Operators were understandably cook-a-hoop. ProphetX posted that it believes “it is a landmark step toward establishing clear, workable federal standards for the industry.”

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