A Congressional subcommittee hearing on prediction markets made one thing clear: there will be more hearings.
On Tuesday, five witnesses testified before a subcommittee of the House Committee on Agriculture to talk about the myriad of issues surrounding the evolution of sports trading on prediction markets.
Rep. Dusty Johnson, the chairman of the Commodity Markets, Digital Assets and Rural Development subcommittee, said he thinks Congress has an “obligation” to help find common ground between the side that sees sports contracts as financial instruments versus unregulated sports betting.
“Courts are acting in this space, the commission is acting in this space,” Johnson said at the end of the two-hour hearing. “I do not believe the committee, that Congress, should be silent; I do think there is work for us to do here. I agree with [Committee] Chair [GT] Thompson’s statement that this will not be the last hearing we have in this space.
“… More than one of our witnesses said that there is need for additional clarity. It may be that the courts and the commission alone can provide that clarity and yet, if we don’t ask whether or not there is an important role for Congress, we are not doing our job.”
Read prediction markets testimonies
The five witnesses came from a mixed background of lawyers, gaming industry leaders and risk management:
- American Gaming Association Senior VP of Government Relations Chris Cylke.
- Indian Gaming Association Chairman David Bean.
- Katten Muchin Rosenman Partner Carl Kennedy focuses on U.S. derivatives laws.
- Morgan, Lewis & Bockius Partner Robert Schwartz previously served as the general counsel for the Commodity Futures Trading Commission.
- Solidus Labs CEO Asaf Meir co-founded the AI-powered risk monitoring company.
What did they say?
Kennedy and Schwartz suggested the CFTC has all the power it needs under the Commodity Exchange Act to regulate prediction markets and allow innovation. Meir agreed, adding that the kind of market integrity required for new contracts like sports require different, yet possible, surveillance.
Bean and Cykle, meanwhile, gave the gaming industry’s pitch as to why sports outcomes should only be bet on at legal, regulated sportsbooks.
“No one voted for this,” Bean said of the expansion of sports onto prediction markets. “Congress has not passed any new laws on this matter. This has happened because one person has declared online sports gambling is legal in every state and on every reservation.
“One man has taken the CFTC from crops to props.”
One area where all seemed to agree was the order from the CFTC for Kalshi to ignore a court order telling it to void sports contracts in Michigan. Schwartz said the order from Selig was “certainly a flex” with Cylke using the same quote moments later.
Main takeaways from hearing
Along with the thought that Congress should act, Johnson gave three other main lessons learned on Tuesday.
One is the acknowledgement that the CFTC has “important work” ahead, he said. He also noted concerns over adequate resources are legitimate after it had its budget and staff cut. More than one committee member suggested Chairman Michael Selig needed more help than himself, as he is the only person on the five-person commission.
Second was the fact that everyone agreed that market integrity and customer protection are critical, he said.
That led to Johnson’s third point: the subcommittee should take part and “explore” whether there are sufficient enough tools for to ensure both.
