The American Gaming Association has voiced its opposition to sports event contracts available on prediction platforms like Kalshi. It has requested an outright ban of these contracts by the US government, and the Commodity Futures Trading Commission will take a more in-depth look into the matter.

The American Gaming Association is urging the US Commodity Futures Trading Commission to ban prediction market exchange platforms from presenting sports event contracts, warning that such platforms could undermine the state-regulated sports betting industry.

The rise of prediction exchange platforms

Prediction market exchanges, such as Kalshi, Robinhood, and Crypto.com, allow users to stake money on various events, ranging from financial market trends to the outcomes of sporting events. These platforms claim to operate as derivatives markets, enabling participants to invest in contracts rather than place traditional bets.

However, critics argue that these so-called investments closely resemble sports gambling, which is already regulated at the state level. The AGA contends that permitting such exchanges to offer sports-related contracts would create an unregulated national betting market, jeopardizing consumer protections and state authority.

AGA's strong opposition

AGA Chief Executive Officer and President Bill Miller has been vocal in his opposition to prediction exchanges offering sports contracts, calling the issue 'pivotal' for the future of the legal sports betting industry. "The CFTC must reject the classification of sports event contracts as investment products and reinforce the integrity of the existing state-regulated sports betting market," Miller wrote in an op-ed. "Anything less risks destabilizing a system carefully built to balance economic opportunity with consumer protection and support for states and communities."

Miller further warned that failing to act could create a backdoor for unregulated national sports betting, eroding the safeguards established through years of legislative efforts. "The reality is that this effort amounts to a backdoor for national sports betting that threatens state authority, consumer protections, and the integrity of the legal sports betting industry," he added.

Gambling or investment?

One of the key issues at the heart of the debate is whether prediction market contracts should be classified as investment vehicles or gambling products. Supporters of prediction exchanges argue that buying contracts based on event outcomes is similar to purchasing stocks based on a company's projected earnings. Kalshi and similar platforms claim they merely provide a marketplace for speculation, much like traditional financial exchanges.

However, Miller and the AGA reject this argument, asserting that wagering on the outcome of a sporting event is fundamentally a form of gambling. He pointed out that even the marketing strategies of these platforms align more with sportsbooks than investment firms.

"These platforms argue that these contracts are investment vehicles, not wagers or bets," Miller stated. "This is sports betting, and if you don't believe it, their own advertising presents it quite clearly."

The debate over the blurred lines between investing and gambling has gained traction in recent years. Even billionaire investor Warren Buffett has remarked on the increasing overlap between financial markets and 'casino-like' behavior. "The markets now exhibit far more casino-like behavior than they did when I was young," Buffett stated last year.

CFTC review and industry reactions

The CFTC is set to host a roundtable discussion on prediction markets later on in the month as it reviews the legality of sports-related event contracts. The agency has been gathering input from various stakeholders since early last month.

The entities that have submitted comments supporting the AGA's stance include GeoComply, a technology provider of geolocation for mobile sportsbooks, as well as US Representative Dina Titus from Nevada, Major League Baseball, and the Indian Gaming Association. They argue that allowing unregulated sports contracts could disrupt the established sports betting framework, potentially harming consumers and legitimate operators.

Caroline Pham, CFTC Acting Chair, has also expressed concerns over sports contracts being offered on prediction exchanges. "Unfortunately, the undue delay and anti-innovation policies of the past several years have severely restricted the CFTC's ability to pivot to common-sense regulation of prediction markets," stated Pham last month. She continued, "Despite my repeated dissents and other objections since 2022, the current commission interpretations regarding event contracts are a sinkhole of legal uncertainty and an inappropriate constraint on the new administration."

As the CFTC prepares to deliberate on the future of sports contracts in prediction markets, the outcome could have serious implications for both the financial and gambling industries. For the AGA and its allies, the message is clear: sports betting must remain under the jurisdiction of state regulators to ensure integrity, consumer protection, and economic stability. Whether the CFTC will heed their warnings and impose restrictions on prediction exchanges remains to be seen.