Comment Text:
If we take a common sense step back, the year is now 2024. Dodd-Frank was first drafted in 2009, 15 years ago. CEA section 5c(c)(5)(C) in that legislation is referenced is the impetus for drafting this proposed rule in the first place.
In the year, 2009, most of us equated Artificial Intelligence with something out of a Steven Spielberg movie, social media and smartphones were in their infancy as were the gig economy and remote work as we know it.
Gaming at that time was not widely accepted. Integrity in sports was of great concern and a key factor in determining that preventing widespread adoption of “gaming” was not in the public interest.
Times have changed. Professional sports leagues have embraced gaming through official lucrative partnerships. And one of the Senators who helped write the CEA has effectively said as much in a rebuke of the proposed rule before us.
What we know now is that Gaming should never have been adjacent to, as a subject counter to public interest, as acts of terrorism, assassination or war. The notion that someone has an idea that their local baseball team will win a game that night and they have the ability to find an accepting counterparty to “put money on it”, even a friend on the other side of the couch, could be counter to “public interest” to the level of an act of war in its nature is unimaginable.
The CFTC in this proposed rule aims to make this harmless act impermissible if facilitated through basic means of technology offered by a CFTC-regulated entity. Such an entity, I argue, is providing an essential service to in public interest.
1) Entities that offer gaming that are regulated by a trusted governing body provide an important service to citizens in lieu of wholly unregulated entities.
Today, half of American adults who love to watch sports still cannot participate in sports prediction markets through a legal entity. Despite the repeal of PASPA in 2018, many states have been mired in political squabbling and Tribal issues that have delayed citizens’ ability to engage in the harmless activity of making a sports prediction and placing money on it. In those states, the primary way to do so is with entities who are under no regulation whatsoever, sometimes at their own financial risk.
2) The Wire Act puts up barriers to gaming entities to effectively operate, making offering gaming via CFTC-regulated entities a viable alternative
The Wire Act has served as a cumbersome burden to gaming entities in modern day. It effectively prevents “exchanges” from operating because it requires that all trading information be sequestered in one state and not cross the border to another state. This means that for modern day gaming entities operating in the cloud, something obviously not considered in 1961, they must invest hundreds of thousands of dollars, if not greater than $1 million for setting up a server in each state. And there is not enough liquidity for an exchange to operate.
3) States are unable to effectively regulate the gaming industry.
Complicated by the impacts of Covid and facing many budget crises, states are thirsting for tax revenues. It is the primary reason that they stand up a gaming industry to begin with. The desire to placate a large segment of the citizenry that loves sports and the desire to protect them from unregulated entities are distant considerations. States have put up so many barriers that “Main Street” businesses are all but excluded from participating in the industry. Every state has its own set of rules that require strict compliance and only large companies can afford to pay lobbyists to have input. When consumers cry for help and complain about companies making an unfair decision, regulators look the other way. Their tax revenue depends on doing so. The relationship between state regulators and large operators has grown cozy at the detriment to some extent of the citizens. In the one state, Massachusetts, where Gaming regulators have taken the key step of considering citizen issues, operators have so far refused to engage in the public process.
4) In lieu of exchanges and effective state regulation, sports wagering operators have taken advantage of citizens.
This is well-summarized in a recent Wall Street Journal article about operators kicking out winners and encouraging more play from losers. You can also consider a report from Australia titled, “You Win Some, You Lose More” that details the same phenomenon. Regulatory capture has occurred as rules in states have largely been created with input from large public companies. These large companies are incentivized to increase quarterly profits again and again. They write the rules and they are the counterparty. It is not far-fetched to say that it is a rigged game.
In closing, there is a dire need for gaming in the U.S. to transform. In lieu of Congress modifying the Wire Act to help modernize the gaming industry and make it a more healthy environment in which citizens may participate, the CFTC can act now.
By not acting. By not finalizing this overly restrictive and ill-conceived rule around gaming. There is an opportunity for the CFTC to effectively regulate gaming on a national level, that is to determine far more precisely what the nature of “gaming” conducted against the public interest may constitute. But that will take time to explore.
It may be time well worth taking.
