Key stakeholders are responding to recent changes in the prediction market industry as companies expand and diversify their offerings as a new NFL season begins.
Circa Sports CEO Derek Stevens expressed his displeasure with recent decisions by the Commodity Futures Trading Commission (CFTC) to permit prediction markets like Kalshi and Polymarket to offer sports-focused event contracts that resemble wagering.
Stevens believes sports event contracts offered by prediction markets across the country offer “illegal gambling” by circumventing rules and regulations that apply to operators.
“Hard to believe all the legal entities that have a stake in the industry will lay down,” said Stevens in a post on X. “No federal excise taxes, no state gaming taxes, no league fees, no official data fees, no geo-comply fees, no compliance fees, no problem gambling funding, etc.”
Prediction markets offer gambling-style trading
Stevens opposes prediction markets that provide sports event contracts, like Kalshi offers across its platform. Last month, Kalshi initiated a self-certification process with the CFTC to offer contracts on football games that resemble point spreads, point totals and touchdowns, and this week it filed to offer parlay-style contracts ahead of the new NFL season beginning on Thursday, Sept. 4.
Kalshi titled the latest market in documents filed with the CFTC as “Will <outcomes> occur in <events>?,” suggesting that the company will offer ready-made parlay-style contracts. Kalshi considers events under its new market to include individual games, weeks of the season, drafts, full season and postseason play for all competitive events. The outcomes can include player and team statistics, awards, milestones, playoffs and championships.
The prediction market also developed a football-specific rulebook for the contracts, with the offerings banned for current and former players, coaches and staff of the NFL and NCAA football. Paid employees of the NFL and owners of the teams are also prohibited from trading the contracts. Household members and family of the class are also barred.
Meanwhile, earlier this week, the CFTC approved Polymarket to relaunch in the U.S. by taking a “no-action” position on QCEX, the designated contract market (DCM) now owned by Polymarket. The prediction market intends to officially re-enter the U.S. after formally exiting the country in 2022 in a settlement with the CFTC.
Departing CFTC commissioner wants more oversight
Meanwhile, concerns regarding prediction markets were also raised by departing CFTC commissioner Kristin Johnson, who mentioned prediction markets in a farewell address.
“As of today, we have too few guardrails and too little visibility into the prediction market landscape,” said Johnson. “Because the target audience for these contracts is retail customers and some market participants seem to be marching down a path to offer leveraged, margined prediction market contracts to retail investors, there is an urgent need for the commission to express in a clear voice our expectations related to these contracts.”
Johnson also took note of the new offerings that prediction markets are deploying to meet the demand of customers while attempting to separate themselves from the competition.
“The commission has recently witnessed a number of newly created and legacy firms seeking licenses to offer event contracts,” added Johnson. “In a number of instances, these businesses approach the commission seeking licenses to offer traditional products, only to quickly shift once a license is in hand and seek to self-certify prediction market contracts.”
Johnson wants more oversight of prediction markets as the CFTC considers new leadership while also allowing more operators to enter the U.S. market. Kalshi board member Brian Quintenz is being considered for the position of CFTC Chair. Quintenz, a former CFTC commissioner, is awaiting Senate committee approval and full chamber confirmation to assume the role of chair.
For now, Johnson’s departure leaves Acting Chair Caroline Pham as the sole commissioner of the CFTC, and Pham has said she will leave if and when Quintenz is confirmed. The CFTC is supposed to consist of five commissioners.
