Bipartisan Bill Seeks to Ban Sports Betting on Prediction Markets
A bipartisan group of US senators has proposed legislation that would prohibit prediction markets from offering contracts related to sporting events. These markets, where customers exchange contracts tied to the outcome of events, have seen rapid growth in popularity, attracting scrutiny from lawmakers concerned about unregulated betting and potential risks to consumers.
Prediction markets currently operate under federal commodities and derivatives regulation, overseen by the Commodity Futures Trading Commission (CFTC), rather than state gambling laws. This allows them to operate in states where traditional sports betting is prohibited. Key players in the space include Kalshi and Polymarket, with established betting firms like DraftKings and FanDuel also launching exchanges.
Concerns Over Regulation and Consumer Protection
The proposed legislation, spearheaded by Republican Senator John Curtis and Democrat Senator Adam Schiff, represents the first bipartisan attempt to regulate the sector at the federal level. Both senators have voiced concerns that the CFTC has not adequately protected consumers from the potential dangers of unregulated gambling. The bill would also extend the ban to casino-style games offered on these platforms.
Several states have already taken legal action against prediction markets, seeking to compel them to obtain betting licenses and adhere to stricter regulations. Arizona recently escalated its efforts, filing criminal charges against Kalshi, alleging illegal sports and election betting operations.
Industry Response and Legal Challenges
Prediction markets are actively contesting these state-level actions, arguing they are fully compliant with CFTC regulations and that states are overstepping their authority. Kalshi, in a statement to the Wall Street Journal, suggested the Senate proposals were influenced by lobbying from the casino industry, seeking to protect their market share.
Concerns Over Market Manipulation and Integrity
Beyond consumer protection, sports organizations are increasingly concerned about the potential for market manipulation and insider trading within prediction markets. However, some organizations are exploring partnerships with exchanges to mitigate these risks. Major League Baseball (MLB), for example, recently partnered with Polymarket, establishing an integrity unit to detect and prevent malicious activity.
Senator Richard Blumenthal, who introduced the Prediction Markets Security and Integrity Act alongside Senator Andy Kim, stated that prediction markets “have become a haven for insider trading, market manipulation, and underage gambling,” and are “turning war into a casino game, and creating a market for national security leaks.”
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