The Commodity Futures Trading Commission (CFTC) announced on Thursday it was suing Rhode Island in response to the state pursuing legal action against registered prediction operators.
Rhode Island is now the seventh state to find itself in the crosshairs of the CFTC, the federal body in charge of licensing and regulating prediction markets. 18 states are currently embattled with litigation related to prediction outlets.
Legal response to Rhode Island
Rhode Island Attorney General Peter Neronha filed a lawsuit against market leaders Kalshi and Polymarket last week, accusing the pair of violating the state's sports betting laws. This is a common argument among state regulators and officials. Many of whom believe that sports event contracts — which allow users to trade binary options related to sports outcomes — represent a form of gambling.
Licensed prediction operators have refuted the claim, citing their compliance with CFTC-established standards. They have also reiterated that federal law preempts state law, meaning that prediction operators shouldn’t be held to the standards of state-licensed sportsbooks and gambling operators.
“CFTC-registered exchanges have faced an onslaught of lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets,” CFTC Chairman Michael S. Selig said in the announcement. “This power grab ignores the law and decades of precedent.
The CFTC’s is aiming to stop Rhode Island’s lawsuit against Kalshi and Polymarket in addition to filing its complaint.
Distinct or similar?
Rhode Island’s initial suit references the blurring of the lines between gambling and predicting. One of the primary differences between prediction platforms and sportsbooks is that the former’s market prices are influenced by real-time customer sentiment in a peer-to-peer setting. The latter uses house-made odds.
Selig also previously described prediction markets and sports betting as “two separate things.” “Event contracts allow businesses and individuals to hedge event-driven risks, enable investors to manage portfolio exposure, and provide the public with information about the outcome of future events,” Selig said. “These products are commodity derivatives and squarely within the CFTC’s regulatory remit. As I’ve said before, the CFTC has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives, and that’s exactly what we’ll do.”
Those distinctions weren’t enough to satisfy Atty. Gen. Neronha, who said that the country’s smallest state wouldn’t back down from federal officials. “We allege that Kalshi and Polymarket are operating outside of our sports betting laws, and ultimately, Rhode Islanders will be footing the bill for their actions,” he said in a statement. “Federal intervention in this lawsuit doesn’t change that. We are confident in our case and are ready to go on behalf of Rhode Islanders.”
Political motivations and campaigns
Of the 18 states involved in some sort of legal dispute with prediction operators. The seven that were sued by the CFTC are led by Democratic Attorneys General. That includes Neronha, who was sworn in on Jan. 1, 2019. The CFTC’s latest action comes on the heels of President Donald Trump’s Tuesday campaign for support for the CFTC in its regulation of prediction operators.
It is critically important that the CFTC’s exclusive authority over Prediction Markets is maintained. That they thrive,” Trump posted on Truth Social, while calling out “scum” Democratic opponents.
The Trade Handle Prediction Markets Take
Tensions between state and federal officials have been high for months. Prediction markets soared during the NFL season and are experiencing exponential growth. With Kalshi recently reporting $3 billion in weekly trading volume. The escalating legal action is another step in a case that feels destined to head for a decision by the Supreme Court.