Senators Call to End CFTC Prediction Markets Support

Over the past year, Commodity Futures Trading Commission (CFTC) prediction markets support has been a given. If a group of senators has their way, that might not be possible for much longer.

A group of 15 United States Senators, led by Jeff Merkley (D-Ore.) and Richard Blumenthal (D-Conn.) has sent a letter to the Senate Appropriations Subcommittee on Financial Services and General Government. The group wants to end CFTC prediction markets support, calling for a ban on using federal funding to oppose tribes and states enforcing their own gambling laws.

If enacted, that could be a serious blow to Kalshi, Polymarket and other prediction markets’ strategy. The CFTC has been prediction markets’ biggest advocate, regularly suing states that attempt to rein in prediction markets.

The CFTC has held that prediction markets offer event contracts, which brings them under federal jurisdictions. Sports gambling has been left to the states, as required by the landmark Murphy v. NCAA decision in 2018. Prior to that case, the federal government had a ban in place on sports betting, with a few small exceptions.

How Could This Affect the CFTC and Prediction Markets?

If the CFTC’s support for prediction markets can no longer use federal funding, it could drastically change the makeup of the pending lawsuits. Prediction markets have sought to get cases to federal court, counting on the CFTC’s prediction markets support to bolster their legal strategy.

If that can no longer occur, prediction markets would essentially be on their own. That hasn’t gone very well for them to date. In Nevada, Kalshi lost a lawsuit in Nevada district court. That required it to geofence Nevada until the full case is decided. Kalshi had better results in federal court against New Jersey, as the Third Circuit Court of Appeals sided with Kalshi.

The conflicting cases and the Senate’s attempt to take action likely have the question of the CFTC’s prediction markets support heading for the Supreme Court.

What Does the Senators’ Letter Say?

Essentially, Blumenthal and Merkley wrote that the CFTC’s prediction markets support has nothing to do with its original purpose. The letter claims event contracts were meant to be used for agriculture or economic matters. Instead, prediction markets have offered contracts on the outcomes of sports or political events.

“Online prediction markets, which have rapidly grown in popularity, are drastically different from the original intent of event contracts, which those companies claim to offer,” the letter states. “Serving to hedge against financial risks, event contracts were largely limited to the agricultural sector and economic matters. Prediction markets, however, have distorted this purpose and infiltrated the world of sports, politics, and even foreign affairs.”

What Is the Likely Response?

Republicans currently chair the committee, which is led by Sen. Bill Hagerty (R-Tenn.) With Republican president Donald Trump notably favoring the CFTC’s prediction markets support, it’s unclear if Hagerty will act on the letter.

Hagerty is running for re-election and is widely expected to win. The same is true for ranking member Jack Reed (D-R.I.), who also received the letter. However, if Democrats win control of the Senate in November, Reed would become the new chairman. Given that all 15 senators who signed the letter are Democrats, Reed might be more likely to act on the letter than Hagerty.

Essentially, that sets another clock on prediction markets to figure out their strategy. The new Congress will be sworn into office in January, which gives prediction markets a maximum of four months to plot their next move. If Hagerty acts on the letter, that time frame will shrink drastically.