Michigan Regulators Express Concern With Sports Betting Via Prediction Markets To CFTC
The Michigan Gaming Control Board sent a letter about sports event contracts at Kalshi and others to the Commodity Futures Trading Commission, but didn't explicitly say that it is illegal.
The Michigan Gaming Control Board filed a letter with the Commodity Futures Trading Commission on Tuesday to express concerns with sports event contracts via prediction markets platforms like Kalshi. The gambling regulator stopped short of saying that the practice was illegal in Michigan, however.
“The Michigan Gaming Control Board (MGCB) is writing to provide feedback to the Commodity Futures Trading Commission (CFTC) regarding the topic of prediction markets. As discussed herein, the MGCB has several concerns regarding certain event contracts that presumably are available in Michigan.”
So far, six states have said that sports betting via prediction markets is not legal in their jurisdictions. Kalshi has sued in federal court to stop enforcement in three of those states and has won preliminary injunctions against both Nevada and New Jersey. More on the legal status of prediction markets.
What the MGCB said about sports betting at prediction markets
Some highlights from the letter:
“The sporting event contracts presumably offered by CFTC-regulated entities in Michigan are not operating pursuant to or in accordance with LSBA.”
“The MGCB is concerned that the availability of sporting event contracts in Michigan, operating outside the boundaries of the legal framework established by LSBA, places Michigan citizens at undue risk. Under Michigan law, internet sports betting may only be offered by a sports betting operator, which must be a licensed commercial casino or a federally recognized tribe (operating independently or in partnership with an internet sports betting platform provider). Each sports betting operator, any suppliers it utilizes to conduct internet sports betting in Michigan, and certain key persons and employees must be investigated and licensed by the MGCB. The licensing process is intended to ensure that sports betting operators and suppliers are suitable in terms of character, reputation, integrity, business probity, and financial ability, thereby protecting Michigan citizens from potential bad actors and reducing their risk of financial harm. A license is considered a revocable privilege, and offering internet sports betting without a sports betting operator license is a felony under Michigan law.”
The MGCB summarized some of the framework of regulation in the state, including topics like responsible gaming, minimum age requirements, and game integrity. Then it noted “To the extent CFTC-regulated entities and the sporting event contracts offered thereby do not meet the minimum standards of this framework, the MGCB believes there is an elevated risk of harm to Michigan citizens, their personal information, and their funds.”
“The MGCB is also concerned that the availability of sporting event contracts will cause financial harm to state, local, and tribal governments in Michigan.”
“Finally, the MGCB is concerned that the promotion of sporting event contracts as an investment vehicle is antithetical to the agency’s stance and foundational message on responsible gaming – that gambling in any form is for entertainment purposes only. The notion that internet sports betting can and should be pursued as a viable means of financial gain undermines this position and increases the risk of irresponsible and problem gambling behavior.”
You can see the full letter to the CFTC here:
No cease-and-desist… yet?
It’s perhaps surprising that Michigan has not yet joined several states that have issued C&Ds to Kalshi.
It’s an interesting letter, considering the fact that the MGCB has issued dozens of cease-and-desist letters to operators it believes are operating illegally in Michigan in recent months.
Several weeks ago, the MGCB said it had opened “investigations into unlicensed sports prediction markets.” The letter to the CFTC does somewhat match the tone of that press release, albeit a bit toned down. From that release:
“These platforms, which bypass Michigan’s regulatory framework, have raised significant concerns about consumer protections. Michigan’s investigations align with similar actions already taken by other state regulatory bodies and focus on how this form of unlicensed sports betting may jeopardize the integrity of Michigan’s legal sports betting system. ‘We take consumer protection very seriously and are committed to ensuring that Michigan residents are engaging with safe and legal sports betting options,’ said Henry Williams, Executive Director of the MGCB. ‘Unlicensed entities not only pose a risk to consumers but also undercut the integrity and revenue-generating potential of the state’s regulated sports betting industry. We are actively investigating these practices and will pursue appropriate measures to protect Michigan bettors.’
It’s feasible that the MGCB has not yet completed its investigation; the regulator is nothing if not methodical about tackling unlicensed operators in the state.
At the same time, Kalshi’s early wins in a pair of federal court cases could be giving regulators in states like Michigan pause.
Michigan is also deploying a less combative tone than other states have used. Focusing on potential harms rather than legality could end up being more persuasive to the CFTC.
Finally, it’s interesting that the CFTC canceled a planned roundtable on prediction markets, yet the commission is continuing to post comments on a page dedicated to said roundtable.