The Commodity Futures Trading Commission paused micro contracts on the first points scored in basketball games from Novig and scorigami contracts from ProphetX.
Bets on individual plays that can be predetermined, like who might score the first points in a basketball game, are exactly the types of markets leagues have sought to shut down in legal betting states in order to protect integrity and curb athlete harassment.
The CFTC sent letters to Novig and ProphetX warning that self-certified contracts from the prediction markets may not be allowed under the Commodity Exchange Act. The two exchanges also need to explain to the CFTC why the markets comply with federal law, Front Office Sports first reported.
Professional sports leagues have been vocal about bets on both sports betting and prediction market platforms. The NBA banned certain prop bets at sportsbooks before the start of the season, though the rules exclude prediction markets. The NFL has sent multiple notices to prediction markets about “objectionable bets” and filed an amicus brief with the Supreme Court arguing sports event contracts should fall under state regulation.
CFTC flags micro and scorigami contracts
The CFTC told Novig that micro contracts, such as who scores the first points in a basketball game, are susceptible to manipulation and should not be listed, according to FOS. ProphetX’s scorigami contracts, which pay out on a final score that has never happened before in a sport’s history, were deemed not to meet the CEA’s definition of a swap.
The contracts were self-certified but have not been listed, so no one has traded on them yet. Both companies have the chance to explain to the CFTC why the contracts should be allowed.
Neither ProphetX or Novig responded immediately to LSR’s request for comment. However, ProphetX told FOS it was asked to voluntarily defer listing the scorigami contracts rather than withdraw them. The company said it complied and has since provided additional analysis to the agency.
“Any derivatives contract offered by a CFTC-regulated exchange must be compliant with the Commodity Exchange Act,” the CFTC told LSR. “The CFTC’s stay of ‘micro trades’ today reflect a broader commitment from Chairman Selig and the CFTC to protect consumers from potential fraud or manipulation.
“We will continue working with our registrants to ensure prediction markets offer the valuable information that they have for decades.”
That is nearly the same statement the CFTC provided to FOS, with a significant difference. The quote provided to LSR refers to a “stay” of the trades, while the version published by FOS called it a “rejection.”
Sportsbooks offering micro bets
Micro bets are a form of prop betting that usually go play-by-play. In other words, sportsbooks can offer markets on whether next play will be a run or pass in an NFL game or the next pitch will be a ball or strike in an MLB game.
Those wagers have come under scrutiny, especially in New Jersey. Lawmakers in the Garden State have been attempting to pass legislation that would ban such wagers.
S2160 advanced past its first committee vote in March, but it has not moved since. Sen. John McKeon is an advocate to ban such markets and said he was “over the top disturbed” when hearing about problem gambling related to micro betting.
CFTC tightens up
The CFTC flagging certain sports event contracts is another example of the agency tightening its oversight of prediction markets.
CFTC staff issued an advisory that raised the bar for mention markets because of their susceptibility to manipulation. Before self-certifying a mention market, exchanges must weigh factors such as independent verification, public scrutiny, outside pressure and other safeguards, according to the Division of Market Oversight.
“Accordingly, DMO staff view independent verifiability and substantial public scrutiny as essential attributes that DCMs should consider in determining whether any Mention Market contract may be listed in a manner consistent with Core Principle 3,” the advisory said.
The CFTC also issued a separate advisory on prediction markets’ incentive programs, laying out “staff expectations regarding both procedural and substantive content.” Kalshi ended its program shortly after the advisory, nearly a year earlier than scheduled.
The CFTC is also tightening its rules, excluding casino-style gambling products, including sportsbook wagers and casino games, from the definition of a swap. It proposed another rule on Oct. 9 that would further define a swap to include event contracts tied to sports, politics, culture and weather, a move that would strengthen its claim to exclusive jurisdiction over those markets.
Leagues pushing integrity safeguards
The NFL’s three official sports betting partners, Fanatics, FanDuel and DraftKings, follow a list of prohibited wagers to protect the integrity of games and provide consumer protections. Despite all three operators offering prediction markets, the NFL remains in constant communication on wagers that are “inherently objectionable” for the state-regulated sportsbooks.
The NFL has had similar conversations with prediction markets but is not seeing the same compliance as its betting partners. At the time of the league’s Supreme Court amicus brief earlier this month, the CFTC had not adopted a flat ban on markets the NFL views as objectionable.
“Although the NFL, among others, has encouraged the Commission and the DCMs to adopt safeguards and rules for sports wagering like those in the state-regulated world of traditional [legal sportsbooks], the Commission and DCMs so far have stuck to a more laissez-faire approach,” the brief said.
The NBA’s betting partners, which also include DraftKings and FanDuel, cannot offer parlays combining multiple unders on the same player’s statistics, bets on opening tips and certain individual plays and unders on players expected to play fewer than 12 minutes. The restrictions cover first basket bets, the same type of micro contract the CFTC told Novig not to list.
The new rules follow gambling scandals involving former NBA players Jontay Porter and Terry Rozier. Porter received a lifetime ban from the NBA for betting violations, while Rozier is accused of manipulating his performance so bettors could cash under bets. Rozier has pleaded not guilty and denied wrongdoing.
Last November, the MLB worked with sportsbooks to cap bets on individual pitches at $200 and prevent them from being included in parlays after two Cleveland Guardians allegedly conspired with bettors on what those pitches would be.
