The Conspiracy to Kill State Gambling Law With Make Believe
On 'prediction markets' and their nonsense.
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Last week, the Nevada Gaming Control Board — which regulates gambling in the state — became the latest government entity to sue Kalshi, an operator of what are known as “prediction markets,” for allegedly flouting state gambling law.
On the same day, an obscure federal financial markets regulator, the Commodity Futures Trading Commission, or CFTC, weighed in against Nevada in a different lawsuit against a different prediction market operator, asserting that its federal jurisdiction preempts any state efforts at regulation or legal enforcement.
Welcome to the raging battle over “prediction markets” and the hole prediction market operators are attempting to blow in state gambling law, thus foisting unfettered, constant access to gambling onto the entire nation.
Backing up, “prediction markets” allow users to place bets on the outcomes of certain real-world events, be they elections, awards shows such as the Grammys, the amount of snowfall in a particular storm, or various economic indicators. (See the picture above.) Instead of traditional bets, though, you buy “shares” in the outcome of the future event.
These markets also allow users to bet — ahem, buy shares and trade — on sports. In fact, most of the “trading” activity they host is straight up sports gambling. On Kalshi, 90 percent of the activity is betting on sports, whether the outcome of certain games or the likelihood of independent events, such as how many rebounds LeBron James will have or whether or not Lionel Messi will score a hat trick. The percentage dedicated to sports betting isn’t quite as high on other prediction markets such as Polymarket or Crypto.com, but it’s still the single largest category of activity.
Since sports gambling is regulated and taxed at the state level, states have asserted jurisdiction over prediction market platforms, suing them to either abide by state gambling law or shut down. In addition to the Nevada case, attorneys general or other regulators in New Jersey, Tennessee, California, and Massachusetts (and I probably missed some) have sued different prediction market operators, saying the product they provide is sports gambling by another name.
Last year, a bipartisan coalition of 36 state AGs made a joint filing in the New Jersey case explaining how prediction markets are attempting to circumvent state gambling laws. In some cases the states have won; in others, it’s been the prediction market firms.
But this isn’t only a legal movement. Legislators and governors in several states, including Iowa, Hawaii, and Connecticut, have also proposed banning or regulating prediction markets. Connecticut Gov. Ned Lamont, a Democrat, last week became the first governor to explicitly back those calls, proposing to bar anyone under 21 from accessing prediction markets. “The feds are pretty slow at figuring things out, so maybe it’s a good time for a state like Connecticut to take the lead on prediction markets,” Lamont said.
The CFTC, though, has asserted sole jurisdiction over prediction markets, claiming that its oversight of “event contracts” means all state rules in this area are preempted, i.e., bogarted by the feds. In a video and Wall Street Journal op-ed, CFTC Chairman Michael Selig said the CFTC will brook no state efforts to regulate prediction markets, and will intervene in court on the side of the prediction market firms.
The tell here, though, is that in neither the video nor the op-ed did Selig mention anything about sports. Literally not a word. “Event contracts serve legitimate economic functions,” he wrote. “Farmers can manage risk related to temperature changes that may affect crops, and small-business owners can hedge against tax increases or energy-price spikes, to name two examples.”
But, again, sports betting is the single largest category of activity on these platforms! Do farmers and small business owners really need to hedge against the possibility of the Yankees losing on Opening Day?
There’s a very “don’t believe your lying eyes” aspect to the CFTC’s pleas, as it’s very plain that the chief service prediction markets provide is unfettered sports betting, and that several, if not all of them, would completely fall apart were that activity eliminated as it makes up the lion’s share of their revenue.
Utah Gov. Spencer Cox, a Republican, had perhaps the best response to Selig.
Mike, I appreciate you attempting this with a straight face, but I don’t remember the CFTC having authority over the “derivative market” of LeBron James rebounds. These prediction markets you are breathlessly defending are gambling—pure and simple. They are destroying the lives of families and countless Americans, especially young men. They have no place in Utah.
Let me be clear, I will use every resource within my disposal as governor of the sovereign state of Utah, and under the Constitution of the United States to beat you in court.
Indeed, while there’s a very gray, squishy area between many financial instruments and straight-up gambling at the best of times, it simply beggars belief that Congress, when it granted the CFTC jurisdiction over the financial instruments in question, meant to backdoor eliminate all state laws governing gambling.
I also have to mention that Selig is the lone commissioner currently at the CFTC (out of a usual group of five, hence “commission” in the name), due to term expirations, resignations, and the Trump administration failing to put replacements in place. So one person is effectively trying to legalize sports gambling nationwide, on his own, from his perch at a financial regulator most folks have never heard of.
“I don’t care whether he’s a Republican or whether he’s a Democrat,” Kentucky State Rep. Michael Meredith, a Republican, said. “I don’t think one bureaucrat in Washington D.C. should be making that decision.”
Like with other unsavory industries such as crypto, the Trump administration has gotten completely into bed with the prediction market firms — Trump’s son is a “strategic advisor” to Kalshi — so Selig has likely received the directive, or at least implicit instructions, to go all-in to protect Kalshi and its ilk. That also likely explains why no other CFTC commissioners have been named: More commissioners would water down Selig’s authority.
The more that the widespread legalization of online sports gambling is studied, though, the worse it looks. In states that have legal sports betting, credit card debt and delinquencies rise, credit scores decline, bankruptcies rise, and debt collections rise, as residents shift money from savings and investments to gambling. Particularly among young men, online sports betting is ubiquitous, with polling from Protect Borrowers showing that “Nearly 1-in-12 younger male likely voters (8%) report owing more than $5,000 in sports betting debt.”
Annual sports betting totaled $5 billion in 2017, but climbed to $150 billion in 2024. Turns out, putting a personal casino in everyone’s hand is a public policy disaster.
Now, to be clear, aside from Cox, who I think is genuinely anti-gambling and governs one of the few states that hasn’t legalized sports betting in any form, most legislators and enforcers stepping in against prediction markets are doing so because their states have revenue streams and economic development goals tied up in their own oversight of gambling operations. As I’ve written before, many states are engaged in an endless pursuit of gambling revenue (despite its consistent failure to deliver as promised), which prediction market firms and the CFTC would completely undermine if they’re successful at delivering federal preemption.
But even if their intentions aren’t pure, their failure to win out over the CFTC and the prediction market operators would be a disaster for good governance, heralding a world in which corporate actors can evade state regulations by simply calling their product something it obviously isn’t and finding a pliant federal regulator willing to play the fool and go along.
Several states are currently looking to better regulate traditional and online sports gambling — by eliminating betting on individual athletes, for example — but if Kalshi and its cohort render all state gambling laws moot by calling everything an “event contract,” even those bills passing won’t matter much.
That this tactic is being employed to boost a product that is leaving a trail of financial ruin in its wake is even worse, but the principle should be the same regardless: You don’t get to pick the laws and regulators who govern you by pretending your product isn’t what it is.
SIMPLY STATED: Here are links to a few stories that caught my eye this week.
California Attorney General Rob Bonta is asking courts to immediately stop Amazon from engaging in what his office alleges is illegal price-fixing.
Illinois Gov. JB Pritzker endorsed a ban on junk fees in his State of the State address. Utah’s state legislature is also advancing a junk fee ban. If adopted, either would become the seventh state with a full ban.
“The average data center employs about the equivalent of an average Olive Garden restaurant.”
Several state attorneys general say they will proceed to trial in a monopolization case against LiveNation-Ticketmaster, even if the Department of Justice settles.
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— Pat Garofalo
These people find all kinds of ways to game the system and it's like they don't even care that they're being obvious. It reminds me of this company selling a covid product by claiming it protected against covid but also claiming it wasn't a drug that needed FDA approval, because it had no active ingredient (yes that's already an unresolvable contradiction, but they literally just outright told the press that's how they could get around the FDA rules), and they actually developed this product by deliberately searching through FDA approved list of inactive ingredients GRAS database in order to make a covid nasal spray out of that ingredient! They had PR on an ivy league publication and science influencers on social media hyping up the study that the company already selling the product funded and conducted, but who could later claim they had no idea that they were in fact hyping a product they were just "discussing interesting new science". Meanwhile people promoting the product on social media were pointing to the science influencers talking about this "preliminary science" with innuendo that it was experts who were endorsing the product. Of course there have been a whole bunch of people who continue to use this and other sketchy covid products, with no idea that there's no evidence of efficacy or even safety. My thought here is that we may think that calling it "prediction markets" is so obviously gambling, it's the same as gambling, there will be a probably larger than we'd like to think, portion of society who will believe that prediction market betting is just inherently safer, more respectable and or less sketchy than gambling, simply because they don't call it gambling, and it's "finance" (like fancy people do). Branding is very powerful, and even the best of us can get tripped up by cognitive biases with framing and language and nobody can be an expert in everything.