Think Tank To CFTC: 'Adopt A Policy Of Permissionless Innovation' For Prediction Markets
A conservative think tank penned a letter to the Commodity Futures Trading Commission advocating for “a policy of permissionless innovation toward prediction market venues.”
The Competitive Enterprise Institute led the letter, signed by leaders from 15 different trade groups that are mostly libertarian in nature and advocate for free markets.
The group wrote that “the CFTC must affirm now that prediction markets dealing with elections and other current events are allowable as futures trading venues under federal law.”
The letter also supports seemingly unfettered expansion of sports event contracts:
“…small firms affected by the performance of a team in a game or a season can buy prediction market contracts to manage effects on their sales of sports-related products or services.”
The CEI’s prior stance on online gambling and sports betting
In the past, the CEI has advocated for the federal government to stay out of online gambling and leave the legalization and regulation of it to the states. So far, seven states have tried to stop Kalshi from offering sports event contracts because they believe the activity is illegal online sports betting in their jurisdictions.
Here’s a report from CEI in 2018 that advocates for states to take advantage of the opportunity in sports betting:
For the last 25 years, the states have lost out on millions in tax revenue they could have collected from sports betting, thanks to a ban pushed by and maintained by sports leagues. The federal government made a grave error in 1992, when it put the interest of these multimillion dollar businesses over those of the states and their voters. Now that this failed law appears to be nearing its end, states should not repeat Congress’ mistake. Instead, state legislatures should begin developing robust regulatory regimes for legal sports betting that emphasize compliance, market competitiveness, and cooperation among all stakeholders.”
The CEI’s new advocacy for sports betting via prediction markets is hard to square with its past advocacy for states’ rights in sports betting. The only caveat is that the CEI notes that prediction markets are marketplaces of buyers and sellers, not “casinos in which customers bet against a ‘house’ that has incentives to tilt odds to its favor." That turn of phrase is seemingly a dig at the state-level gambling industry CEI used to champion. The CEI letter also doesn’t advocate that the CFTC implement the type of regulatory regimes that exist at the state level for sports betting and which the CEI highlighted in past communications, including above.
The full CEI letter to the CFTC
Dear Acting Chair Pham and Commissioner Johnson:
As leaders of conservative and free-market groups, we believe that government should not stand in the way of innovative information services. We watched with interest the solid performance of prediction markets in forecasting the results of the 2024 presidential election, and noted the contrast with the lackluster performance of legacy media polls.
We believe this performance shows there is potential for prediction markets to disseminate practical information to Americans on political, cultural and economic trends that can help them better plan their futures. Therefore, we ask that in contrast to the CFTC under the Biden administration, the CFTC in this new administration adopt a policy of permissionless innovation toward prediction market venues.
The Biden administration CFTC pursued weaponized regulation against prediction market venues, even attempting to ban an election market exchange that had been approved by the CFTC under the Obama administration back in 2014. Fortunately, this and other attempts to ban prediction markets were thwarted by federal courts that correctly found the CFTC had exceeded the law. But we believe that to fully reverse the Biden CFTC’s damage, the CFTC must affirm now that prediction markets dealing with elections and other current events are allowable as futures trading venues under federal law.
We agree with Brian Qunitenz – former CFTC Commissioner and President Trump’s current nominee for Chair of the CFTC – that event contracts offered by prediction markets are almost always permissible commodity futures under the federal Commodities Exchange Act, as they are “occurrence[s]” that are “both beyond the control of the relevant parties to the contract…and associated with a financial, commercial, or economic consequence.” As in traditional futures exchanges, prices of contracts on prediction markets are set by buyers and sellers. This makes prediction markets fundamentally different from casinos, in which customers bet against a “house” that has incentives to tilt odds to its favor. We note that another similarity to traditional futures exchanges is prediction markets’ ability to enable individuals and businesses to hedge risks. Election results impact businesses large and small, and prediction markets allow small firms to hedge election results just as large corporations do with expensive and complex derivatives. Similarly, regarding sports outcome contracts increasingly being offered by prediction markets, small firms affected by the performance of a team in a game or a season can buy prediction market contracts to manage effects on their sales of sports-related products or services. As Quintenz notes, “contracts relating to the outcome of sporting events could now have a legitimate economic and hedging purpose for businesses.”
We also of course believe that the CFTC should not hesitate to punish fraud or other infractions from prediction markets, just as it does when traditional futures markets run afoul of the law. We therefore respectfully request that the CFTC issue a policy statement stating two things. First, that event contracts offered on prediction markets are subject to the exclusive jurisdiction of the CFTC. And second, that the CFTC will police behavior of prediction market venues but will not restrict the subject matter of the event contracts offered by the venues.
We thank you for consideration of our views.
Who signed the letter?
Beyond the CEI, here are the other groups that signed the letter:
Americans for Tax Reform
Shareholder Advocacy Forum
60 Plus Association
American Association of Senior Citizens
American Commitment
Americans for Limited Government
Center for Freedom and Prosperity
Center for a Free Economy
Center for Individual Freedom
The Committee for Justice
Frontiers of Freedom
Institute for Liberty
Market Institute
Southwest Public Policy Institute