Nevada Regulator Fights CFTC Market Prediction Rules

Nevada Gaming Control Board Chairman Mike Dreitzer has blasted the federal government for its approach to prediction markets, saying that sports event contracts should be considered the same as traditional sports bets. Nevada Gaming Chief Challenges CFTC’s Treatment of Sports Contracts On October 14, Dreitzer challenged the Commodity Futures Trading Commission’s (CFTC) efforts to develop a separate regulatory framework for event contracts during a webinar hosted by the Indian Gaming Association. He argued with operators about their claims of having products that are not like traditional gambling. The dispute follows two regulatory measures proposed by the CFTC last week. One proposed rule would expand the federal definition of a swap to include event contracts involving sports, politics, cultural events and weather. A separate interim final rule confirms that casino-style gambling, including sportsbook wagers and casino games, is not within that definition. Dreitzer said the measures distinguish between products in a way that does not correspond to the way they actually function. He pointed out the difference between a $10 bet on an NFL game and a $10 contract on the same sporting event, arguing that in either case you are doing the exact same transaction. Dreitzer also rejected the argument that prediction markets should not be classified as gambling because they are peer-to-peer. He noted that there are a number of traditional gambling activities such as poker, horse racing and bingo that also involve players competing against each other. This structure does not automatically mean an activity is outside the gambling laws, the regulator says. He also wondered whether prediction markets always pit individual traders against other individuals. Hedge funds, designated contract markets and affiliated trading entities, Dreitzer suggested, can take positions against retail customers. Nevada Gaming Chief Questions Prediction Market Fairness and Safeguards Dreitzer further disputed the idea that price discovery is achieved when people trade contracts in prediction markets. He believes that sophisticated financial firms can disadvantage casual traders rather than creating a fair market. The chairman also countered another argument used by prediction market operators: that customers can trade positions before an event is finished. He noted that online sportsbooks have offered cash-out options for years, so that is not sufficient justification to separate the products. Dreitzer also expressed concern about consumer protections, particularly because some prediction market sites allow 18-year-olds to participate. He highlighted that products like these run the risk of conflating gambling for entertainment and investment for profit. Prediction market operators have already faced lawsuits in Nevada, where its regulator won a court battle against Kalshi. The regulatory fight also rages through the courts of other states. The court had already ruled unanimously against Kalshi in its fight with regulators in Ohio and Tennessee. It concluded that prediction markets were not excluded from the applicable state gambling statutes, including the tax obligations. Kalshi’s petition for a rehearing asks for a fresh look at that ruling, but does not vacate the existing decision. Meanwhile, proposed changes by the CFTC could make the relationship between federal oversight and state gambling laws even more complicated. The agency said comments on the proposed swap definition must be filed within 30 days of its publication in the Federal Register.