US senators spent two hours discussing the integrity of sports and sports betting on Wednesday, including a deep examination of how prediction markets are involved in the industry. 

The Senate Committee on Commerce, Science, and Transportation held the “No Sure Bets: Protecting Sports Integrity in America” hearing, with Sen. Marsha Blackburn presiding. Lawmakers used the hearing to examine threats to sports integrity and concerns about young people’s exposure to sports betting.

The lawmakers also took an interest in prediction markets and how they are working around state gambling laws while under the regulation of the Commodity Futures Trading Commission (CFTC). 

“[Sports betting is] now available in almost every single corner of the country,” Blackburn said in her introduction. “It’s carried with you night and day, right there on your mobile device. Americans can now place bets instantly, and it is all done with a single touch of the screen. 

“The introduction of sports event contracts has exposed more people to sports betting. While prediction markets represent financial innovation, there is real concerns that they function much like traditional sports betting without the regulation.”

Blackburn assembled a panel of five industry witnesses. They included: 

Sen. John Hickenlooper opened the questioning by pointing to the volume of sports event contracts on prediction markets and arguing that they allow operators to bypass state sports betting laws.

“The CFTC has no experience in regulating sports betting. This workaround is merely a way for prediction markets to skirt state consumer protection laws and fail to protect young, vulnerable people,” he said. 

Sen. Ted Cruz said prediction markets are “for all intents and purposes sports betting.” Cruz also called out the importance of policing offshore sportsbooks that have existed for decades.

The AGA’s Miller testified that the prediction markets do not comply with most regulatory protections that licensed sportsbooks follow. He also said they offer “odious markets that threaten national security.” 

He mentioned the 41 state attorneys general who have agreed that prediction markets are gambling. Miller said that by evading state and tribal authorities, the prediction markets have cost “close to $1 billion” in lost taxes that could support social services.

He also said that while prediction market operators argue sports event contracts are financial markets and investing, they also advertise themselves as sports betting. Miller said that when Congress created the CFTC in 1974, it was not intended for sports. 

“The CFTC was created to regulate markets crucial to the nation’s economy, not Monday Night Football,” he said. “A rogue CFTC and prediction market operators are making a mockery of congressional intent.“ 

McHenry, a former congressman, said the CFTC offers a solid layer of regulation, unlike the “patchwork” of state laws that oversee sports betting. He said the operators offer the event contracts under “extensive compliance rules.” 

He tried to pull the hearing together around consumer protection, rather than the difference between sports betting and prediction markets. Kalshi recently joined the National Council on Problem Gambling. The discussion around the differences remained throughout.

“Conflating the two does little to advance our shared goals of consumer protection,” McHenry said. 

McHenry said prediction markets are based on trading between two individuals, with operators taking a transaction fee, as opposed to sportsbooks setting odds and winning when the consumer loses. 

“The business models are different,” he said.

McHenry said there is a minimum age of 18 in place for prediction markets, just like other securities markets under the CFTC. That differs from most states with legal sports wagering, where bettors generally must be at least 21 to place bets.

“Our coalition members adhere to best practices on advertising, and we welcome the conversation about age requirements,” he said.

McHenry said 97% of trading volume on coalition member platforms comes from traders older than 21. The average age is 33, he added. 

With the CFTC in the midst of a rule-making process for prediction markets, McHenry suggested the Senate could step into that process.

Multiple lawmakers believe that route should be considered. That is on top of multiple pieces of legislation filed looking to place guardrails around prediction markets. 

Dr. Levant also said Congress should step in and help create federal standards.

The post Senate Sports Betting Integrity Hearing Scrutinizes Prediction Markets appeared first on DeFi Rate.

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