Prediction market platforms like those run by Kalshi and Crypto.com generated two hours of critical questions at a US Senate Commerce Committee hearing, including scrutiny of the platforms’ advertising practices, regulatory disputes and the pitfalls they can encourage.
“We want athletes to compete on merit, but the opportunity to win money can tempt players – and sometimes even the 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 “plant doubts in the minds of fans.”
Cruz highlighted some recent cases and said: “NBA players and coaches are accused of manipulating performance and providing inside information to win bets. Two major league baseball pitchers allegedly manipulated their own pitches in exchange for money. [Major League Soccer] “banned two players for intentionally receiving yellow cards to win bets, and the UFC canceled matches and terminated contracts due to suspicions of match-fixing.”
“It’s not uncommon for fans scrolling through Twitter on a Sunday afternoon in the fall to see posts speculating that a controversial call from an official was game-related,” Cruz said.
Other lawmakers focused on marketing that encourages problem gambling or that has reached young people who might not otherwise have access to gambling. Sen. John Hickenlooper, D-Colorado, accused prediction market companies of unleashing the “hounds of hell” on social media and marketing to “take advantage of 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 representing Kalshi, Crypto.com, Robinhood, Coinbase and others. He said that exchanges are not allowed to those under 18 years of age and that the average age of users is 33 years.
problem gamblers
Harry Levant, director of gambling 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 “As retail participation in markets increases, we have a responsibility to balance free markets and individual responsibility with customer education and safety barriers,” he wrote.
And other lawmakers on Wednesday took aim at the rapidly growing industry that avoids state regulators and competition with regulated gaming on U.S. tribal lands, where revenue is a critical support for the financial health of tribal reservations.
CFTC
Even as senators put the event contracts space under the microscope, the Commodity Futures Trading Commission that regulates derivatives trading platforms is suing Tuesday to stop a new law in Minnesota that was to make prediction market activity there illegal. The regulator adds this to a growing list of lawsuits the federal agency has filed against states that have tried to limit prediction markets or declare them in violation of state gambling laws.
“This Minnesota law turns legal traders and participants in prediction markets into criminals overnight,” CFTC Chairman Mike Selig said in a statement, adding this lawsuit to similar agency fights against Arizona, Connecticut, Illinois and New York.
Selig has led an agency 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 (where he is the sole member of what should be a five-member commission) is also seeking a formal rule to establish customized standards for the sector.
McHenry defended the CFTC’s role on Wednesday.
“The CFTC, as the police on the beat, has the ability to police this market, just as it has the broader commodities market that has existed and been well-versed for decades,” McHenry said.
Senator Hickenlooper responded: “You are the first person who has told me that you believe the CFTC is up to standard.”
One of the witnesses, Bill Miller, president and CEO of the American Gaming Association, argued that federal regulators “are not at all competent to handle this, and two, they are 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 derivatives that belong to “fundamentally different business models” from bets placed at gambling companies. He compared them to long-regulated grain futures contracts, adding that “our member companies have improved surveillance more than any casino and more than any sportsbook in the country.”
In the end, President Cruz said, “The Supreme Court may have to decide the issue.”
