Prediction markets platforms such as those run by Kalshi and Crypto.com drew two hours of critical questions at a U.S. Senate Commerce Committee hearing, including scrutiny of the platforms’ advertising practices, regulatory disputes and the cheating they may encourage.
“We want athletes to compete on merit, but the opportunity to win money can incentivize players — and sometimes even athletes themselves — to guarantee a safe bet,” Sen. Ted Cruz, a Texas Republican who chairs the committee, said during Wednesday’s hearing. He said high-profile incidents of player cheating “sow seeds of doubt in the minds of fans.”
Cruz pointed to some recent cases, saying: “NBA players and coaches are accused of manipulating performances and providing inside information to win bets. Two major league baseball pitchers allegedly fixed their own pitches in exchange for money. [Major League Soccer] banned two players for intentionally receiving yellow cards in order to win bets, and the UFC canceled matches and terminated contracts due to suspected match-fixing.
“It’s not uncommon for fans scrolling through Twitter on a fall Sunday afternoon to see posts speculating that a controversial call from a manager was gambling-related,” Cruz said.
Other lawmakers have focused on marketing that encourages problem gambling or reaches young people who otherwise would not be allowed to gamble. Sen. John Hickenlooper, a Colorado Democrat, accused prediction market companies of unleashing “hellhounds” in social media and marketing to “prey on our young people.”
Patrick McHenry, who was a prominent member of the House of Representatives until his recent retirement, is now an advisor to the Coalition for Prediction Markets which represents Kalshi, Crypto.com, Robinhood, Coinbase and others. It said transactions are not allowed to people under 18 years old and the average age of users is 33 years old.
Problem gamblers
Harry Levant, director of gaming policy at the Public Health Advocacy Institute, testified Wednesday, telling lawmakers he was a recovering gambling addict and lamenting the “avalanche of unregulated advertising” from prediction market companies.
“It’s a known addictive product, just like heroin,” he said.
Earlier this week, Kalshi co-founder and CEO Tarek Mansour posted on social media site X to highlight his company’s $2 million commitment to the National Council on Problem Gambling to support an initiative on “merchant health and safety.”
And other lawmakers on Wednesday delved into how the fast-growing industry avoids state regulators and competition with regulated gaming on U.S. tribal lands, where revenue is a critical support to the financial health of tribal reservations.
CFTC
Even as senators scrutinize the event-driven contracting space, the Commodity Futures Trading Commission, which regulates derivatives trading platforms, is pursuing a lawsuit filed Tuesday to block a new Minnesota law that would have made prediction market activity there illegal. The regulator adds this to a growing list of lawsuits the federal agency has filed against states that have sought to limit prediction markets or declare them in violation of state gambling laws.
“This Minnesota law overnight turns legal traders and participants in prediction markets into criminals,” CFTC Chairman Mike Selig said in a statement, which added the lawsuit alongside similar fights against Arizona, Connecticut, Illinois and New York.
Selig has led a legal campaign to defend his agency’s authority to supervise and regulate prediction markets, which are run on platforms registered under CFTC rules. Meanwhile, his agency – in which he is the only member of what is supposed to be a five-member commission – is also applying a formal rule to set bespoke standards for the sector.
McHenry defended the CFTC’s role on Wednesday.
“The CFTC, as the cop on the ground, has the ability to oversee this market, just as it has with the broader commodities market that has existed for decades,” McHenry said.
Senator Hickenlooper responded: “You are the first person to tell me that you think the CFTC is up to par. »
One of the witnesses, Bill Miller, president and CEO of the American Gaming Association, asserted that federal regulators “are absolutely not competent to handle this, and secondly, they are absolutely hurting tribes and states financially.” He added that “it was never the intention of Congress to create a federal gaming department through the CFTC.”
McHenry argued that these event contracts are derivative products that belong to “fundamentally different business models” from bets placed with gambling companies. He likened them to long-regulated grain futures, and he added that “our member companies have enhanced oversight greater than any casino and greater than any sportsbook in the country.”
Ultimately, President Cruz said, “The Supreme Court may have to decide the issue.” »
