WASHINGTON — Senators at a Commerce Committee panel hearing aired concerns Wednesday about rapidly growing prediction markets, appearing largely unswayed by industry arguments that they are not a form of betting subject to state regulation.
Members of the committee’s Consumer Protection, Technology and Data Privacy Subcommittee were in agreement at a hearing that sports “event contracts” on prediction markets bear a strong resemblance to traditional sports betting. They also shared worries about all forms of betting affecting the integrity of sports.
The subcommittee heard from representatives of the sports betting and prediction market industries, as well as stakeholders focused on sports integrity, gambling regulation and gambling addiction.
Subcommittee Chair Marsha Blackburn, R-Tenn., expressed her concern about betting’s impact on the integrity of sports, as well as potential additional risks presented by prediction markets.
“While prediction markets represent financial innovation across many sectors, there are real concerns that they function much like traditional sports betting without the enforcement of state regulators and attorneys general,” Blackburn said.
Later, Blackburn, who is running for governor in Tennessee, said that witness testimony could inform potential regulation by the committee, “and also looking at the division of what should be federal and what should be state and preserving those states’ rights.”
The prediction market industry says its platforms are more similar to trading in agricultural futures than traditional casino betting and are therefore under the jurisdiction of the federal Commodity Futures Trading Commission, rather than state gaming regulators.
Former Rep. Patrick T. McHenry, R-N.C., now a senior adviser for the industry group Coalition for Prediction Markets — which is led by fellow former Rep. Sean Patrick Maloney, D-N.Y. — told the committee that the business models are “fundamentally different products.”
“In a casino or sportsbook, the house sets odds and profits when customers lose. In a prediction market exchange, participants trade with one another while the platform earns transaction fees for facilitating the market,” McHenry said.
But Bill Miller, president and CEO of the American Gaming Association, was critical of prediction markets.
“We’re part of the entertainment economy. These so-called prediction markets are deceptively calling sports betting ‘financial contracts’ and ‘investment.’ Despite messaging designed to beguile policymakers and the public, they are increasingly being exposed as backdoor sports betting operations,” he said.
Sen. Ted Cruz, R-Texas, who chairs the full Commerce Committee, pointed to discord over the federal government’s role.
“There is serious disagreement about whether the CFTC can unilaterally allow prediction markets to offer sports event contracts pursuant to the Commodity Exchange Act,” Cruz said. “Many simply see prediction markets as a workaround to state gambling laws.”
Sen. John Curtis, R-Utah, said that McHenry’s explanation of the difference between prediction markets and sportsbooks wouldn’t pass muster at a Utah town hall.
“They’re going to say to me, tell me how that is not gambling. It seems to meet every definition of gambling,” he said.
The CFTC contends that “event contracts” offered by prediction markets are a form of derivative and therefore fall under the commission’s jurisdiction.
