What to know:
- CFTC warns prediction markets against using American-style betting odds that could encourage risky gambling behavior.
- The agency urged regulated platforms to comply with federal law and avoid “deceptive” odds presentation.
- Kalshi said it will follow the CFTC’s guidance as the debate over federal and state oversight continues.
The CFTC has cautioned certain prediction markets against using odds similar to those found in the US form of gambling because it seeks to increase regulation of sports betting derivatives.
As reported by Bloomberg, the agency has written to regulated organizations to ensure that they comply with federal law and refrain from “deceptive” behavior in offering contracts on their lists or advertising them.
This is coming amid rapid growth of prediction markets in the United States, as there are increasing debates over whether sports betting should be regulated by federal or state laws.
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CFTC Raises Concerns Over Betting Odds
In the case of American odds, which are also called moneyline odds, the betting amounts required for winning a particular sum of money from a $100 bet are stated by positive and negative figures.
Prediction markets normally rely on contract prices rather than odds. A price of 50 cents, for instance, is equivalent to an estimated 50% probability. Below or above this price, the American odds can be calculated through conventional formulas.
It is reported that the Commodity Futures Trading Commission cited a study indicating that the betting odds in an American style may incentivize gamblers to take more risks. The study served as a basis for the CFTC in advising online platforms regarding the presentation of betting odds.
As one of the leading prediction market providers, Kalshi said that it will be following the CFTC’s instructions.
“Being a federal exchange, Kalshi will comply with the CFTC guidance in letter and spirit by its deadline,” a company representative wrote in a statement via email.
US Prediction Markets Face New CFTC Battle
This is in the larger context of debates about who will be responsible for regulating prediction markets in the US.
Michael Selig, who is the chair of the CFTC, has consistently contended that the federal agency alone has jurisdiction over prediction markets. In addition, the CFTC has filed lawsuits against some states.
Selig is initiating rulemaking efforts concerning this industry and has maintained that current federal legislation grants the CFTC wide powers over the regulation of prediction markets.
Yet several states have dissented and claim that there may be certain prediction markets operating within the scope of state legislation concerning gambling and sports betting.
The importance of this discussion is heightened by the rapid growth of these platforms to valuations reaching into the billions. In this regard, both Polymarket and Kalshi have been supportive of federal oversight in the form of the CFTC.
However, there are some U.S. senators, along with regulators of tribal gaming, who wish to establish legislation ensuring that state sovereignty continues to oversee sports betting.
With the latest CFTC notice, yet another twist is provided in the long debate surrounding prediction markets in the US as well as the extent of federal control over sports wagering.
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