Tennessee is the latest state to write the Commodity Futures Trading Commissions (CFTC) and express its concerns over the future of prediction markets.
Illinois, Maryland, Montana, Nevada, New Jersey, and Ohio already sent cease-and-desist letters to companies offering prediction markets. Michigan announced last week it was also entering investigations into the validity of these betting markets.
Key takeaways
- Tenneseee did not go so far as to send cease-and-desist letters to operators.
- The legislature’s letter to the CFTC cited numerous examples of prediction markets violating sports betting regulatory standards.
- One trading platform said it should not be subject to local regulation since it is federally regulated.
The letter was authored by the Tennessee Sports Wagering Council, the state’s sports betting regulator. In it, the council encouraged the CFTC to remove prediction markets from the list of options for consumers.
“We are writing to express our concerns with the sports event contracts currently being offered in Tennessee by Commodity Futures Trading Commission regulated entities,” read the letter. “We believe that these sports event contracts are Wagers under the [Tennessee Sports Gaming Act] and are being offered in violation of Tennessee law and regulations.
“As the Commission reviews these sports events contracts, we ask that you respect the policy decisions made by the Tennessee Legislature and not permit the offering of sports events contracts.”
Trading sports contracts is legal in all 50 states, while only 39 offer legal sports betting.
The contract-based system allows users to purchase an array of outcomes involving sports events. Essentially, a user might buy a contract that says Team A will win a future game instead of loading up a legal sportsbook and betting on them to win the event.
The lack of distinction between the two processes led Tennessee sports betting regulators to follow the path of those in other pro-gambling states and to contact the CFTC.
Can states regulate trading platforms?
One of the biggest issues for regulators is unlicensed entities’ ability to mimic licensed sportsbooks. This removes the state’s ability to generate tax dollars and deprives consumers of the usual protections afforded to them at licensed outfits.
“The Tennessee Legislature has put in place many requirements of its sports betting Licensees in order to protect those who choose to wager in our state,” the council claimed in the letter. “The CFTC regulated entities currently offering these sports events contracts are not compliant with these protections (or many others) mandated by the Tennessee Legislature.”
The letter highlighted a variety of options offered by prediction markets that cannot be found at licensed sportsbooks. These include the ability to make credit card deposits, wagering with cryptocurrency, markets for injuries and penalties, college player prop markets, and live markets for college sports.
Sites with prediction markets also lacked a self-exclusion list, responsible gaming requirements, and anti-money laundering safeguards.
The next step in the process remains unclear.
In the case of popular trading platform Kalshi, it sued states such as New Jersey and Nevada once it received cease-and-desist letters from local regulators, claiming it was federally regulated and did not need to comply with state-level regulations.
