The latest directive from the Commodity Futures Trading Commission could have a major impact on prediction markets operators required to geofence users in certain states from accessing the platforms.
The commission announced Thursday that designated contract markets could no longer restrict certain states from accessing the federally-regulated exchanges.
Chairman Michael Selig said DCMs must provide “competitive, open, fair, and impartial access to their members and persons with trading privileges” under current federal regulations.
“Derivatives markets must operate on a uniform basis at a national scale in order to achieve the purposes set out in the Commodity Exchange Act,” Selig said. “Geographic access restrictions are inconsistent with those purposes and the Act’s impartial access requirements.”
The interpretation of the rule makes the legal situation surrounding prediction markets even harder for operators, as some states, including Michigan and Nevada, have secured injunctions to stop sports contracts from being traded in their states.
Prediction markets have 30 days to respond
The CFTC noted that DCMs must cease domestic geographic restrictions that violate the Impartial Access Requirements within 30 days or submit an explanation for why compliance isn’t feasible to the Division of Market Oversight.
During that 30-day period, DCMs must also ensure that intermediaries accessing the markets are complying with the CFTC’s Impartial Access Requirements or explain why compliance isn’t feasible.
“The Commission will consider the facts and circumstances of any particular case in connection with potential commission action,” the CFTC said in the announcement.
The interpretation presents some challenges already facing considerable legal pushback from state regulators. Several states have won court orders barring prediction market operations in those jurisdictions.
The Garden State asked the Supreme Court to take up the issue after two differing appellate court rulings went for and against Kalshi’s ability to offer sports contracts. Arkansas is the latest to move against the industry, announcing a lawsuit against Kalshi this week.
DraftKings CEO unfazed
Beyond leading operators like Polymarket and Kalshi, traditional sports betting companies have entered the prediction market industry, including DraftKings, FanDuel, and Fanatics.
DraftKings CEO Jason Robins addressed the issue in an earnings call on Friday. He said the prediction market legality would eventually be resolved by the courts.
“Obviously, we’re always monitoring anything on the state regulatory side,” he said. “We’ve managed to stay completely out of the litigation everywhere. I generally think that most states are waiting to see what the courts decide before taking more severe action. But you never know. We’ll have to see.”
Robins and the company were sued by the Seminole Tribe for offering sports predictions in Florida, where the tribe has a monopoly for online sports betting through Hard Rock Bet.
“As far as the CFTC thing, I wouldn’t make anything of that,” Robins said. “I don’t think that’s going to affect anything for us. There’s a process for demonstrating why you can only operate in certain geographies. We’ve had a really good relationship with the CFTC, and I think that’ll be something that we can work through with them easily.”
Better Markets addresses ‘lawlessness’
While DraftKings may take a more measured approach to the latest ruling, others decried the CFTC move. Benjamin Schiffrin, director of securities policy for Better Markets, said the CFTC was pushing prediction markets into potentially violating legal actions and setting them up to be in violation of state laws.
Schiffrin said the order puts these firms in a no-win situation. To comply federally, they must operate in states where they are blocked to stay in federal compliance.
“Yesterday, the CFTC took its lawlessness to a whole new level,” he said. “By pretending that event contracts on sporting events are legitimate financial products, it has already demonstrated that it has no regard for state gambling laws that seek only to protect citizens from unregulated gambling. Now, it is directing prediction markets to defy lawful court orders and threatening them with potential enforcement actions if they follow the courts’ commands.”
Several courts have ordered operators like Kalshi to block residents in some states from accessing event contracts on sporting events. A federal appellate court in New York refused to prevent state gambling authorities from enforcing laws against prediction markets.
Schiffrin said this will likely lead to geofencing in New York, Connecticut, and other states. The CFTC now potentially puts these companies at odds with federal law if they don’t continue operating in those states.
“Unfortunately, CFTC Chair Mike Selig thinks he is above the law,” he said. “He doesn’t like that the CFTC and the prediction markets to which he has pledged fealty are losing in court. But that does not give the CFTC the right to tell prediction markets to ignore court orders. Yet this is not the first time he has directed prediction market platforms to do so. It won’t be the last.”
Schiff calls out prediction markets
Prediction markets’ sports offerings have faced bipartisan opposition over the last few years. Sen. Adam Schiff (D-CA) criticized the latest move by the CFTC.
“Sports prediction markets are sports bets,” he posted on X. “By effectively requiring prediction markets to offer contracts in all 50 states, even on tribal lands, the CFTC is once again violating state law and tribal sovereignty.
“This is the CFTC’s most egregious attempt yet to undermine state law, the tribes, and now, the courts. The CFTC chairman has been captured by the industry and his actions reflect only their interests.”
Selig argues derivatives markets must operate on a uniform basis nationally to achieve the purposes set out in the CEA. He says geographic access restrictions undermine national uniformity and consistency outlined in the law.
