Nevada regulator disputes CFTC event contract rules

Nevada Gaming Control Board (NGCB) Chairman Mike Dreitzer said on 14 October that the Commodity Futures Trading Commission’s (CFTC) new event contract rules rest on a distinction between sportsbook bets and sports contracts that does not exist. He spoke on the Indian Gaming Association’s (IGA) weekly webinar, five days after the CFTC event contract rules were announced.

What the CFTC event contract rules do

The CFTC announced two actions on 9 October, according to a Proskauer client alert. The first is a proposal to write event contracts expressly into the definition of “swap” under the Commodity Exchange Act, which the agency describes as a clarification of existing law. The proposal reaches contracts tied to culture, weather, politics and sports.

The second is an interim final rule, effective on publication in the Federal Register. It excludes casino-style gambling products from the swap definition through a two-part test added to CFTC Rule 1.3. EpicWins reported on the CFTC swap rule gambling exclusion on 13 October.

Dreitzer, a lawyer and former executive at Gaming Arts and Ainsworth Game Technology, said the announcement did not surprise him. He said the CFTC has “clearly been working in lock step with the DCMs (Designated Contract Markets)”, the exchanges that list event contracts.

“I think what they’ve created is an untenable distinction without a difference.”

Mike Dreitzer, Chairman, Nevada Gaming Control Board, IGA webinar, 14 October

Dreitzer’s objections

Dreitzer said a $10 bet on the New York Giants at an online sportsbook and a $10 sports event contract are “the same exact thing” from the NGCB’s perspective. The hour-long session also included Scott Crowell of Crowell Law Office, IGA conference chairman Victor Rocha and IGA Executive Director Jason Giles.

He said operators’ claims that prediction markets are peer to peer, and therefore not gambling, “don’t get refuted enough”. He cited poker, horse racing, lottery, bingo and sports betting exchanges as peer-to-peer formats that are gambling.

Who takes the other side

Dreitzer said the counterparty to a casual bettor is a hedge fund or another DCM, and in some cases a company the exchange itself creates. He said “they’re knocking the socks off the casual bettor”, and that the price discovery operators cite amounts to “the maximum amount they can gouge” casual bettors.

“They call that liquidity and market making. I call that being a bookie.”

Mike Dreitzer, Chairman, Nevada Gaming Control Board, IGA webinar, 14 October

On the claim that exchange users can get in and out of a position, Dreitzer said online sportsbooks have long offered cash-out. “It’s still sports betting,” he said. He also criticised commentators on “certain networks” who, he said, are not questioned when they repeat the operators’ claims.

Kalshi’s rehearing request

Kalshi filed for a rehearing in the US Court of Appeals for the Sixth Circuit on the same day as the CFTC announcement. The court ruled against the exchange in KalshiEX LLC v. Schuler on 25 September, according to the case docket.

According to Crypto Daily, the panel affirmed the denial of a preliminary injunction in Ohio, set aside the injunction Kalshi had obtained in Tennessee, and held that the Commodity Exchange Act does not preempt either state’s gambling laws. Ohio has since ordered 10 prediction markets to halt sports contracts.

Next steps

Comments on both CFTC actions are due 30 days after each is published in the Federal Register, according to Proskauer. Kalshi’s rehearing request is before the Sixth Circuit. New Jersey is separately seeking US Supreme Court review in its case with Kalshi, as EpicWins reported in regulators back New Jersey.