The US Commodity Futures Trading Commission (CFTC) is facing growing scrutiny from academics and sports leagues following the NBA’s letter regarding sports event contracts on May 1.
Addressed to CFTC Chair Caroline Pham, the league’s letter highlighted the rapid expansion of these markets and the potential risks they pose to the integrity of the sport. The NBA called for greater regulation and oversight to ensure these markets do not undermine the game.
Sports prediction markets allow people to wager on the outcomes of sports events, such as predicting the winner of a game. However, unlike traditional sports betting, these contracts operate under financial regulations rather than state gaming laws.
States like Nevada and New Jersey have already taken action against contract providers like Kalshi and Robinhood. However, these companies argue that the states are overstepping their authority and infringing on the federal government’s exclusive right to regulate futures derivatives trading on exchanges.
NBA’s concerns: integrity and regulation
Though prediction markets are not considered sports gambling, the NBA has indicated that the potential risks to integrity are very similar. One of the main concerns is wagering on sports can lead to match-fixing and manipulation.
A recent case of this involved Jontay Porter, who was banned from the NBA for life after being found guilty of manipulating matches to influence betting outcomes. Porter recently pleaded guilty to allegations that he exited out of games early to ensure certain bets on his performance would win.
Currently, providers only offer markets on single games and season outcomes. However, the NBA stated the rapid expansion of available markets signals that “player proposition markets (i.e., markets focused on a player’s single-game performance) or other potential markets (e.g., markets focused on officiating decisions, league rules, or player injuries) are not far behind.”
In addition to offering markets which pose a greater threat to integrity, the league noted the lack of a sports-specific regulatory framework.
“Without oversight and regulation tailored to the specific circumstances of sports wagering, the integrity risks posed by sports prediction markets are more significant and more difficult to manage than those presented by legal, regulated sports gambling,” the letter continued.
“While exchanges and brokers operate under the general auspices of the CFTC, that broad-based financial oversight does not include the kind of sports-specific controls and protections that are the hallmark of state sports gambling regulations.”
Gaps in regulatory oversight
Another concern is the use of self-certification, which allows providers to not only launch any market they desire but do so unchecked by any regulator, sport or league. Whereas legal sports betting operators must secure regulatory approval from their respective state gaming regulators before launching new betting markets.
John Holden, Associate Professor at Indiana University – Kelley School of Business, told Insider Sport this is an important critique of the CFTC process, adding: “They [CFTC] have expertise in a lot of things, but sports wagering is not an area that they have historically overseen.”
“The NBA’s letter highlights what a lot of people are missing, which is these contracts are being put forth under the self-certification process, which is far different than the state level licensing process,” Holden said.
Another key difference between the regulation of sports wagering and event contracts is the lack of transparency.
The NBA pointed out that it is not aware of any requirement for exchanges to report potentially suspicious trades or trading patterns to the league or an integrity company. It also noted the absence of any mechanism that would require ongoing information sharing between exchanges and the leagues affected.
“In the absence of these and other, related controls, leagues have little ability to monitor and understand integrity risks and issues if and when they arise,” the letter read.
“And as sports prediction markets become more popular, and more money flows through these channels — which exist outside of existing sports betting regulatory structures — we anticipate that the risks arising from this limited visibility will grow.”
Looking forward
The NBA is not alone in sharing these worries; MLB requested regulatory clarity on sports event contracts in March via a letter. The baseball league asked the commission to create an integrity framework around sports event contracts.
Legal battles are ongoing between state regulators and exchanges, which have the potential to set a precedent for how event contracts are treated under both state and federal law.
Despite pressure mounting to make changes to how event contracts are operated, the decision ultimately falls on the CFTC.
