Sports prediction markets threaten Pennsylvania's regulatory framework

The Executive Director of the Pennsylvania Gaming Control Board (PGCB) has written a letter to the Commonwealth’s two U.S. Senators and 17 members of Congress regarding the concerns of widespread sports wagering through “event contracts” on privately established futures markets.  

Specifically, the letter asks Pennsylvania’s representatives to urge the Commodity Futures Trading Commission (CFTC) to consider the inherent problems caused by a dual-track system of state-regulated legal sports wagering and purported futures trading on sporting events under the facade of federal regulation. The letter follows an earlier submission of written testimony to the CFTC on behalf of the PGCB. In his letter, Kevin F. O’Toole states that the growing presence of sports prediction markets is a significant threat to Pennsylvania’s long-established regulatory framework for gaming and undermines the successful regulation of gambling that has been historically, and constitutionally, left to individual states. “Sports prediction markets operate under the assertion that they are financial derivatives, or swaps, and therefore claim to not be gambling under state law,” O’Toole writes. “These markets effectively create a backdoor to legalized sports betting, operating parallel to, but outside of, the state-regulated system, and without strict oversight.”

The ability of all states to offer sports wagering was established after the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act (PAPSA) in May 2018.  Immediately thereafter, Pennsylvania moved to offer sports wagering products only through vetted and qualified licensees to bettors who were of legal age, and supported through implementation of strict but fair regulations on the operators.

O’Toole further states in his letter that such consumer protections are not required through futures markets since firms that offer sports wagering under the primary jurisdiction of the CFTC are not required to do so. To make matters worse, these prediction markets are typically self-certified by the private entities as compliant with federal law making them widely available with no review by the CFTC. “The jurisdictional clash carries a significant risk of resulting in inconsistent and inadequate regulation,” O’Toole adds. “The CFTC’s framework is designed for derivatives markets often involving sophisticated institutional participants. In contrast, state gaming regulators prioritize consumer protection for the public, implementing detailed measures for responsible gaming, age verification, and problem gambling prevention.”

“With all due respect to the CFTC, it would take years for them to create the regulatory system and oversight that state gaming authorities have in place, which would also create a redundancy for a system that already exists and works exceptionally well.” He concludes that the continued availability of sports wagering through these commodity markets would create a parallel wagering ecosystem in which bettors may assume they have adequate protection, but do not, while offering significantly less oversight regarding potential match-fixing or the exploitation of insider information.