Senators Critical of Prediction Markets in Committee Hearing

 ^{Sen. John Hickenlooper (D-Colo.) believes prediction markets are posing as investments and skirting state consumer protection laws. (Photo: Alan Kotok / Alamy)}

A Wednesday hearing of the Senate Commerce and Technology Committee revealed bipartisan discomfort with prediction markets, with many lawmakers saying they saw little difference between their sports event contracts and traditional sportsbooks.

The hearing, which more broadly looked at the expansion of sports betting and its impact on game integrity, saw criticism of prediction markets from both sides of the aisle as well as from gaming industry officials.

Prediction Markets Take Hits from Both Parties

Kalshi, Polymarket, and other prediction markets are regulated by the Commodity Futures Trading Commission (CFTC), and maintain that this federal regulation is exclusive, meaning the platforms aren’t required to conform with state gaming regulations.

Former Congressman Patrick McHenry, who now serves as a senior advisor for the Coalition for Prediction Markets, testified that prediction markets are fundamentally different than sportsbooks.

“In a casino or sportsbook, the house sets the odds and profits when customers lose,” McHenry told the committee. “In a prediction market, exchange participants trade with one another, while the platform earns transaction fees for facilitating the market.”

But while McHenry explained how the two types of businesses operate differently, senators instead noted how they operated almost identically for consumers looking to make sports bets.

“Prediction markets claim that their sports event contracts—which pose the same risks to consumers as online sports betting—they say that they’re investments and not subject to state or tribal gambling laws,” said Sen. John Hickenlooper (D-Colo.). “This workaround is merely a way for prediction markets to skirt state consumer protection laws.”

The prediction markets didn’t get any breaks when Republicans questioned them, either.

“Americans, including young people, are being inundated with advertisements on social media,” Sen. Marsha Blackburn (R-Tenn.) said. “Advertising to minors is disgusting.”

Sen. John Curtis (R-Utah) and Senator Ted Cruz (R-Texas) similarly argued that sports events contracts were essentially sports bets, at least from the perspective of their constituents. And several senators noted that the 2008 regulations that gave the CFTC the power to regulate swaps and futures wasn’t meant to give it authority over sports betting markets, a stance that has been backed by former CFTC chair Gary Gensler.

AGA Gives & Takes Shots During Hearing

When gaming industry officials took the stand, they used their time to pile on against prediction markets.

“Prediction markets, aided by a rogue CFTC, are making a mockery of congressional intent,” American Gaming Association President and CEO Bill Miller told the committee. “The prediction markets are running national sportsbooks, and it’s time to hold them accountable in the same way we are.”

But the sports betting industry wasn’t let off the hook either. Dr. Harry Levant, who serves as the director of gambling policy for the Public Heath Advocacy Institute, called the expansion of sports betting “a human issue regarding an addiction crisis that needs to be addressed and prevented.”

“It’s ironic to me that the AGA is asking Congress for help with prediction markets, but yet telling you at the same time that you have no role in regulating sports betting,” Levant said. “There needs to be minimum federal safety standards enacted governing sports betting.”

Federal officials have proposed such standards on the sports betting industry. The SAFE Bet Act, first proposed by Sen. Richard Blumenthal (D-Conn.) and Rep. Paul Tonko (D-N.Y.) would provide for strict federal oversight of sportsbooks. However, that and other similar legislation has yet to gain any real traction in Congress.