Trump Administration’s Moves on Prediction Markets Have a Familiar Feel
Trump's attempt to shake up the gambling industry during his second term reminds us of his first administration's effort to redefine the Wire Act.
It’s like 2019, kinda, all over again!
Once again, the Trump Administration is trying to upend the gambling industry. This time, it’s through prediction markets.
On Thursday, Mike Selig, Trump’s chairman of the Commodity Futures Exchange Commission, announced the agency will cancel a rule to prohibit markets on political and sporting events proposed during the Biden Administration. He also revoked a memo from last year recommending exchanges tread carefully ahead of both a federal government shutdown and several lawsuits questioning the legality of prediction market operators offering sports event contracts.
“While the advisory was issued at the staff level with the intent of bringing awareness to the litigation, it has instead contributed to uncertainty in our markets,” Selig said during the event Thursday with Securities and Exchange Commission Chair Paul Atkins.
Not surprisingly, those who have embraced prediction markets as the future celebrated Selig’s comments as a victory.
Coinbase, which is vying for market share among futures exchanges, referred to Selig’s comments in a document the cryptocurrency exchange filed on Friday in its case against the state of Connecticut. The Nutmeg State is one of three states Coinbase has sued in hopes of offering sports markets in those jurisdictions.
The road forward is clear – and it runs through the CFTC… The law is unambiguous: Congress gave@CFTC, and only the CFTC, authority over event contracts,” Coinbase Vice President of Legal Ryan VanGrack posted on X Friday evening, announcing the company’s filing.
VanGrack and others in the prediction market realm may be right and could end up on the winning side of this discussion.
However, I’d strongly recommend they don’t dance until they reach the end zone.
Trump Targeted Online Gaming in 2019
Let’s go back a little more than seven years. At that time, the first Trump Administration’s Justice Department drafted a new opinion on the Wire Act to say it applied to any form of gambling, not just sports betting.
That opinion hit the industry with a thud, as did the opinion’s 90-day window allowing existing operators to conform. There were concerns the new opinion could lead to the downfall of iGaming, which was just about to take off, and multi-state lottery games, like Powerball and Mega Millions, that often have jackpots reaching – and sometimes exceeding – the high nine-figures.
The New Hampshire Lottery filed a lawsuit over the opinion weeks later. While the state won initially, the DOJ appealed . The appellate court upheld the lower court’s ruling two years later. However, it was Joe Biden beating Trump in the 2020 Election that really led to the new opinion’s downfall, as Biden’s Justice Department chose to no longer pursue the case.
We still have three years left in the current Trump Administration, so chances are its lawyers will remain in place while the scores of lawsuits across the country work their way through the courts.
The Trump DOJ and prediction market operators will argue that the CFTC’s position is all that matters. States, tribes and others in the gaming industry will counter by claiming existing federal law has kept gaming out of commodities trading for decades, and this new position would hinder states’ rights and tribal sovereignty.
Same, But Different
It also should be noted that the late Sheldon Adelson, the Las Vegas Sands Corp. founder, contributed millions toward Trump’s successful 2016 campaign. Adelson was also very much opposed to online gaming.
Flash forward to today, and the Trump Administration’s stance on prediction markets comes a year after Kalshi named Donald Trump Jr. a strategic advisor.
One could view the current administration’s view as a 180-degree turn regarding online gaming, and they would have a point. However, should prediction markets end up winning this case, it’s likely those operators will look to expand their offerings elsewhere into gaming. If that happens, some of the very operators threatened by a redefined Wire Act may also face threats to their business by the CFTC redefining what futures markets can offer.
It’s Still Early
It seems like this matter will ultimately go before the Supreme Court. That’s especially true since a Massachusetts federal judge has already ruled to issue an injunction against Kalshi, and Selig has made the current CFTC position known.
However, Alex Kane, as usual, has the right take on this.
The founder of Sporttrade has been trying for several years to get his sports betting exchange into states where sports betting is legal. So far, the app is available in five states: Arizona, Colorado, Iowa, New Jersey and Virginia.
A couple of the greatest challenges Sporttrade has faced are the high barriers of entry in legal states (high tax rates, significant license and renewal fees, and mandatory partnerships with an in-state casino, horse track or professional sports team) and gaming rules or laws set up by regulators or legislators that did not create opportunities for exchanges.
Last year, Sporttrade petitioned the CFTC for “no-action” status to operate its exchange nationwide. Kane hopes to get that status so Sporttrade can launch as a national exchange before others become established in the market.
Kane, who has demonstrated the patience of Job while heading Sporttrade, posted on X last week in light of the recent rulings and statements. He cited attorney and prediction market expert Andrew Kim, who has opined that trying to determine who will win this legal battle after each court ruling or the latest statement is akin to saying an NBA team will win its game because they’re making a run.
“It’s a long game,” Kane said.
And we probably haven’t even hit halftime yet.
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