CFTC Addresses Market Maker Ownership, Underdog Acquired, WNBA Slips Up in This Week’s Bingos & Busts
The CFTC is taking steps to address prediction markets' cross-ownership of market makers, Underdog has agreed to be bought by a British trading firm, and the WNBA puts heat on itself by posting a video of two players gambling on their own game.
In what some in the industry are calling the biggest headline from an intense news week, the CFTC is proposing new rules to address potential conflicts of interest related to vertically integrated exchanges and market makers. While in-house market makers would still be allowed, the proposal says they would no longer be able to take directional positions on markets – in other words, they’d be required to provide liquidity on both sides of a trade, functioning as neutral “bona fide” market makers.
While it’s too soon to tell how this shakes out, such a rule could change the economics for multiple prediction market companies, including Kalshi, which owns market maker Kalshi Trading, and the Robinhood-Susquehana joint venture Rothera.
The development leads our review of some highs and lows around the gambling industry over the past week.
Bust: CFTC’s Proposed Vertical Integration Rules Don’t Go Over Well With Industry Insiders
Some argue the CFTC’s proposal doesn’t go far enough, as the SEC takes a far more restrictive approach toward exchanges owning affiliated market makers. Sporttrade founder Alex Kane argues that even if a vertically integrated exchange is required to stick to a neutral fee schedule, it would be motivated to charge market maker fees so high that only its affiliated trading arm could afford to compete, effectively creating a de facto single-dealer structure, thus defeating the purpose of an open-market exchange. Others foresee higher trading costs, thinner liquidity and quicker consolidation that once anticipated – in fact, “the end of the PM boom cycle.”
Bingo: Underdog Set to be Acquired
British trading firm IG Group has agreed to acquire Underdog in a deal valued at up to $1.3 billion. Last September, Underdog became the first U.S. sports betting operator to pivot to prediction markets, and it’s been expanding and deepening its reach ever since, claiming to rank third in U.S.-regulated notional volume. News of the acquisition comes less than two weeks after Underdog announced the launch of its own exchange, which, per InGame, is “off to a fast start, having topped the $1 million single-day volume mark” only 10 days after going live. Underdog’s aggressiveness is paying off to a ten-figure tune.
Bust: Prediction Markets Take One Step Forward, Multiple Steps Back in Court
Monday’s ruling that temporarily blocks enforcement of Minnesota’s law banning prediction markets came with a caveat – that some event contracts being offered on prediction markets may not fall under the CFTC’s exclusive jurisdiction. It was also accompanied that same day by a federal judge in New York denying for the second time this month Kalshi’s motion for an injunction seeking to prevent the state from taking action against the company, and the company’s appeal was denied a few days later. Kalshi received another negative ruling in Wisconsin and faces a battle on a new legal front: New York state court, where it’s being sued by AG Letitia James. There’s still a long way to go in this legal way, which seems destined for the Supreme Court, but so far, there appears to be a strong judicial lean toward the states.
Bust: WNBA Posts Video of Reese, Bueckers Gambling
It’s been a tough year PR-wise from the WNBA, what with the league’s perceived failure to protect Caitlin Clark and this week’s suspension of Storm co-owner Celeste Keaton after she harassed two teenage fans for supporting Sophie Cunningham’s stance against trans athletes competing in women’s sports. Also this week, the tribulations bled into our world. The WNBA’s own social media account posted (and later deleted) a video of the Dream’s Angel Reese and Wings’ Paige Bueckers – two more of the league’s biggest stars – betting each other $400 on the upcoming Atlanta vs. Dallas game. While wagering on one’s own game would warrant a significant punishment in most leagues, Reese and Bueckers appear to be getting off with a light tap on the wrist.
Bingo: Netflix Presents Entertaining Peek Into Prediction Markets
We placed Netflix’s “The Prediction Games” on the negative side of last week’s Bingos & Busts ledger after watching the trailer, but promised to revisit once we watched the entire Instadoc episode. The verdict: not nearly as bad as we anticipated and worth 36 minutes of our time. While the trailer focused on a group of touts making outlandish claims about their World Cup winnings, the filmmakers included the perspective of plenty of leading industry voices, including Kalshi founder Tarek Mansour and Polymarket’s Shayne Coplan. Nothing earth-shattering here, but an entertaining watch.
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