The Commodity Futures Trading Commission (CFTC) gave its latest indication that it may be amenable to the continued convergence of prediction markets and gaming on Thursday
The federal derivatives regulator unveiled its new Innovation Advisory Committee (IAC) on Feb. 12. The 35-person committee is a mixture of leaders from legacy financial institutions, marketplaces, cryptocurrency firms and prediction market operators. The two biggest online sportsbooks in the U.S. also got a seat at the table.
DraftKings Co-Founder and CEO Jason Robins and FanDuel President Christian Genetski are members of the panel, which the CFTC said will help the commission to keep pace with how innovations such as AI and blockchain technologies are transforming markets and to develop adaptive regulations and financial oversight.
“The IAC’s work will help ensure the CFTC’s decisions reflect market realities so the agency can future-proof its markets and develop clear rules of the road for the Golden Age of American Financial Markets,” said CFTC Chair Michael Selig, who is the IAC’s sponsor. “By bringing together participants from every corner of the marketplace, the IAC will be a major asset for the commission as we work to modernize our rules and regulations for the innovations of today and tomorrow.”
A who’s who of prediction market leaders
As well as DraftKings’ Robins and FanDuel’s Genetski, the IAC members whose companies have skin in the prediction markets game include:
- CME Group CEO and Chair Terry Duffy
- Coinbase CEO Brian Armstrong
- Crypto.com CEO Kris Marszalek
- Kalshi CEO Tarek Mansour
- Polymarket CEO Shayne Coplan
- Robinhood CEO Vlad Tenev
All six of those executives’ companies currently offer sports prediction markets in numerous U.S. states through their status as CFTC-regulated designated contract markets (DCMs) or other federally authorized entities. Five of them, all except CME Group, are involved in active litigation with state gaming regulators over their sports contracts.
FanDuel Predicts and DraftKings Predictions both allow users to trade on sports contracts in a range of states, including the biggest markets in which they are not legally able to offer state-regulated sports wagering: California, Texas, Georgia and Florida. Both gaming giants do so through a partnership with CME Group, while DraftKings recently added Crypto.com sports contracts including player prop-style markets.
Selig-run CFTC takes permissive stance on sports
Before Selig was confirmed as the new CFTC chair, he told the Senate Committee on Agriculture, Nutrition and Forestry that he would “defer to the courts” on the topic of the legality of sports contracts.
“I intend to always adhere to the law and follow what judicial decisions tell me to follow,” he told committee members. “These are just very challenging, interpretive questions I will look to the courts on. I would really want the benefit of understanding what the judges think about the issue. I think it’s vitally important that the CFTC look to the courts on a lot of these issues.”
Since being confirmed as chair, Selig has changed his tune.
He published an op-ed in The Washington Post in which he stated that the CFTC’s approach “should be to deliver the minimum effective dose of regulation” when it comes to event contracts.
Then, in his most definitive statement yet, he said at the end of January that he intends to develop a new federal regulatory framework for prediction markets, and implied that the commission would be ready to defend its jurisdiction over the vertical against states in court. He instructed CFTC staff to withdraw a 2024 rule proposal that would prohibit political and sports-related event contracts, a move the CFTC subsequently confirmed it had made.
Selig also said that the CFTC would reassess its participation in the various pending court cases between prediction market operators and state gaming regulators and attorneys general at both the federal and appeals court level. “Where jurisdictional questions are at issue, the Commission has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives,” he said.
The Coalition for Prediction Markets, which includes Kalshi, Crypto.com, Robinhood and Coinbase, applauded Selig’s stance. So too did DraftKings CEO Robins, who said in a letter to shareholders on Feb. 12 that “we support the CFTC’s engagement on event contracts and the advancement of a more defined and durable regulatory framework.”
“The CFTC Chair recently directed agency staff to establish clear standards for event contracts to provide certainty for market participants,” Robins added. “We view this direction as constructive. Clear rules should reward operators with strong compliance and responsible engagement infrastructure, and support the expansion of sports-related predictions over time.”
