Comment Text:
Dear Sirs:
I am an investor, businessman, citizen, and concerned parent. I have no connection to either the sports or gambling industries beyond passive public investments as part of a diversified portfolio.
The CFTC should clarify that sports betting (a.k.a. gaming) and contracts that mimic sports betting should be banned from prediction markets, as should be contracts that speculate on terrorism, assassination, war, or other activity that is unlawful under any State or Federal law, as intended under the Commodity Exchange Act. Allowing these sorts of contracts has pernicious effects on society.
While prediction markets serve a useful function in certain limited areas where market participants cannot manipulate outcomes and where economic decision makers benefit from gaining a probabilistic prediction about a binary event (e.g. "who will win the Presidential election"), in fact the vast majority of trading volume on these platforms consists of sports gambling, which is and should be prohibited by statute, and requires embarrassing levels of mental corkscrews to redefine as anything other than gaming.
Semantics aside, as Supreme Court Justice Potter Stewart said, "I know it when I see it," and it is obvious that bets on who will win the super bowl or other sporting events are gambling. Gambling was equally obviously intended to be banned under the original framing of the Commodity Exchange Act. Allowing sports related contracts on prediction markets is problematic for a few reasons:
1) Gambling is, for good reason, seen as a controlled activity that requires specific oversight and regulations which have been long-established and should be respected. It can be addictive and harmful even for adults, which is why States regularly enforce rules to try to encourage responsible gambling among other industry-specific rules, something the CFTC is ill-equipped to match or enforce,
2) Trading on futures exchanges is open to younger participants (18+) than has typically been deemed to be safe for gambling by the States that regulate it (often, but not always, 21+), introducing children to possible harm, which, again, the CFTC is ill-equipped to counter or police, and
3) Allowing online gambling despite a clear CEA ban as well as State-level bans via a semantic loophole makes a mock of the long-established principles of the legal system, and undermines faith in America's institutions when rules can be twisted without legislative writ, seemingly to convenience politically connected groups at the expense of regular citizens. That leads to further poisoning of the political discourse, and provides tangible reason for cynicism on the part of citizens. Twisting words to suit those in power is more suitable to Soviet or Chinese tyrannies that relish Kafkaesque distortions than it is to a free and democratic republic.
That last point about the noxious impact that cynical treatment of the law has on society should not be overlooked. The CFTC should be especially conservative in dealing with this issue due to the seemingly close links between prediction markets platforms such as Kalshi and connected individuals at the CFTC (notably Michael Selig and Brian Quintenz), on top of Kalshi's hiring of the President's son as a "strategic advisor." Those potential conflicts of interest raise the risk of undermining the public's faith in the CFTC and in broader American institutions if citizens see the CFTC blatantly disregarding the meaning of the words of the law it is meant to enforce for reasons that look suspiciously convenient for political insiders. Americans operate based on laws that they can trust, and if they have to start to fear that the meaning of common words will be distorted and common laws disregarded, it undermines commerce in the nation and introduces a pernicious incentive towards corruption if the law comes to mean whatever whoever pays the most for it wants it to.
Similarly, these prediction market platforms seem to blatantly disregard the rest of the Commodity Exchange Act by listing bets on war etc., which also seem to be intended to be banned for good reasons, which I will not enumerate here as they largely rhyme with the above. Recent news reports suggest that 80-90% of trading volume on prediction markets such as Kalshi are for sports betting, and thus it is enforcing rules on sports gambling that should be the focus of the CFTC's review as the most salient example of the intent of the CEA being mocked.
The CFTC can support prudent innovation in markets without corrupting the meaning of the language and blatantly disregarding the intent of Congress. Prediction markets should have a place in America's financial constellation. Allowing people to speculate on who will win elections or other events where traders cannot manipulate outcomes or where there is not direct and obvious potential for wider harm and which are not explicitly banned by the CEA should be allowed, but there must also be limits.
Obviously there is room for wider consideration of how these platforms should try to improve their seemingly faulty insider trading/market manipulation protections, and the CFTC should also consider the adverse effects of newly introduced financial incentives for individuals to engineer outcomes purely to fix prediction market bets in their favor or to leak information that is sensitive to national security in order to make a profitable trade, but those are complicated considerations. Enforcing the CEA's originally intended ban on sports betting and other harmful categories should be the first and easiest decision. I hope to see the CFTC stop pretending that gambling is not gaming. Words matter, and in America, a belief in the meaning of the words that underpin our laws and our constitution, matters. There is an easy and obvious solution here, though it would not be a convenient one for Kalshi's and Polymarket's financial backers.
