At the turn of last year and within the first few weeks of 2025, both
Crypto.com and Kalshi began offering trading on the outcome of sporting events as well on their platforms. So, more than anything, that's what's grabbed the industry's attention on various different levels. It is the nature of betting or trading on events, because sports is where the action is. Tat's been proven to be the case for Kalshi where sports, particularly for the football season, trading on sports accounts for the clear majority of the volume, whereas trading on politics is significant and meaningful at certain periods right in the run- up to an election, but attracts less action on a 52 week of the year basis compared to sports, where there is obviously a degree of seasonality, but there's always sports to be traded on any day.
So that's a lot more volume for the prediction market platforms when they expanded into sports. And probably more importantly, as far as the gaming industry is concerned, put prediction markets into their lane. Companies and licensed gambling companies and regulators, and other stakeholders, have primarily identified prediction markets as a clear and present danger to the paradigm of how gaming is regulated on a state and tribal basis.
It’s a paradigm that's been in place since IGRA, the Indian Gaming Regulatory Act, was passed in Congress. So the significance of sports event betting being offered under a federal framework via the Commodity Exchange Act and the CFTC has been interpreted by many, if not most, in the gaming industry as a direct affront to the paradigm of gaming regulation in the US. So, that's where we've got to. Really, I think it was the offering of sports that has caused the disruption here.
But it has given volume to the prediction market platforms. But also prior to 2025 it was presumed that sports wagering was the domain of the states and tribes. States and tribes had sort of regulatory authority to legislative authority to either allow or not allow sports betting and they would regulate it.
James Marrison: So are states pushing back ?
James Kilsby: Very much so. Where we are today is a continually escalating legal battle between states and the prediction market platforms, in which the prediction market platforms claim that their federal law does not disallow them from offering – it doesn't express their law – but does not disallow them from offering trading on sports events. And the states claim that sports wagering is expressly
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Te background to this is that we’re obviously under the Trump administration, which seems to be pro-prediction markets. Don Jr. is an advisor to both Kalshi and to Polymarket and the nominees that have been put forward to chair the CFTC have been pro-crypto and, more likely than not, to be pro-prediction market.
So the CFTC would have had the authority to stop this. But they
regulated at the state level and state laws are very clear that if you don't – if you have a licence in Nevada, New Jersey, Massachusetts then you're offering illegal sports betting. So, that's what we're seeing is a legal battle that's being pursued in a half-dozen or so states and is moving up through the court system.
I think the working assumption of all involved is that this is going to come to the U.S. Supreme Court. And ultimately, the Supreme Court is going to decide this issue, but probably not until more likely 2027 than 2026. Tere's still many, many chapters to be written in this legal battle, but probably it’s going to the highest court in the land.
James Marrison: Te companies which offer prediction markets argue that it is not betting but rather predicting the economic impact of these events. Tey provide a service so it’s not even about the game itself but rather it’s a prediction related to the broader economic outcome of a game.
James Kilsby: Te argument in a nutshell is that the CFTC regulations don't allow trading on gaming. Tey say that the argument of prediction markets is that sports events are not gaming. Tey're an external event that has some economic impact. Just like the price of crops or commodities. And therefore, the trades on the outcome of sporting events are swaps, just as it would be on some other external event that has an impact.
Tat's one side of the argument. One legal question is: is trading on the outcome of sports events gaming? But the other one is: does the federal law pre-empt state sports wagering? Which are clearly much more explicit in this area. Honestly, at the centre of this question is also the CFTC, where fundamentally the CFTC has authority to decide this question.
However, the CFTC has been largely silent on this issue and noncommittal. Tey have not stepped in to stop sports event prediction markets. And as things stand today, there’s not much indication that they intend to.
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