CFTC commissioner departs with prediction markets warning

As more operators move into sports prediction markets, an outgoing Commodity Futures Trading Commission leader issued a warning.

Kristin Johnson said in a farewell address on Wednesday that the CFTC has “too few guardrails and too little visibility into the prediction market landscape”. Johnson is the fourth CFTC commissioner to step down this summer.

Caroline Pham is the acting chair and lone remaining commissioner. Pham said she would step down when President Donald Trump’s nominee to become chairman, Brian Quintenz, receives congressional approval. A Senate vote on Quintenz was delayed without explanation in July.

Johnson’s critiques hit the lack of rulemaking on election contracts, which Kalshi offered for the November 2024 election after the company prevailed in federal court against the CFTC.

“Because the target audience for these contracts is retail customers and some market participants seem to be marching down a path to offer leveraged, margined prediction market contracts to retail investors, there is an urgent need for the Commission to express in a clear voice our expectations related to these contracts,” she said. “The stakes are high. And, if I only have one piece of wisdom to share, it would be the following – get it right. Measure twice, cut once.

“Deciding the course for financial markets and financial markets regulation simply requires remembering why we regulate and the catastrophic consequences that may follow if we fail to regulate well.”

State opposition exists

The CFTC regulates event trading nationwide and has taken a largely hands-off approach as operators like Kalshi continue to launch more products involving sports. State gambling regulators, such as those in Nevada and Ohio, have issued cease-and-desist letters to operators. There are multiple federal and state lawsuits challenging whether or not sports prediction markets should be classified as sports betting.

Recently, FanDuel announced its planned launch of a predictions market product. That was followed by the Ohio Casino Control Commission warning sportsbook licensees that offering prediction markets could jeopardise their licences.

The growing rift between federal oversight by the CFTC and state gambling regulators is emerging as a key test for how prediction markets will ultimately be classified. Analysts estimate US prediction markets could reach several billion dollars in annual handle if they gain regulatory clarity, making them one of the fastest-growing segments of the wagering industry.

Johnson also noted the rise in entities seeking licences.

“In a number of instances, these businesses approach the Commission seeking licences to offer traditional products, only to quickly shift once a licence is in hand and seek to self-certify prediction market contracts. In other contexts, firms that have received a licence quickly auction their newly minted licence to others,” she said.

Polymarket returns to US prediction markets

The CFTC gave Polymarket the “green light” this week to operate in the US, according to a social media post from company CEO Shayne Coplan. There was no indication of when it might launch.

Officially, the CFTC announced it took a “no action” position on Polymarket’s $112 million acquisition of QCEX, a CFTC-regulated exchange.

Polymarket left the US market after a 2022 settlement with the CFTC for operating an unregistered prediction market. The US Department of Justice and CFTC closed investigations into Polymarket, which included an FBI search of Coplan’s apartment, in July.

More operators launching sports markets

FanDuel is not alone among major US sportsbooks in considering prediction markets. DraftKings CEO Jason Robins discussed the opportunity in a recent earnings call.

This week, Underdog announced it was launching prediction markets within its existing fantasy and sports betting app through a partnership with Crypto.com.

Also this week, Webull announced it would offer Kalshi football markets. Financial app Robinhood has already partnered with Kalshi to offer the markets.