Former CFTC Commissioner Dan Berkovitz appeared on The Policy Protocol podcast over the weekend, hosted by former federal prosecutor Renato Mariotti and Jito Labs Head of Operations Rebecca Rettig for CoinDesk. During his interview segment, Berkovitz, who once served as General Counsel for the Securities and Exchange Commission (SEC), had plenty to say about how prediction market sports-based event contracts should be categorized.
“I think prediction markets have tremendous potential for adding valuable information and potentially hedging tools on various… issues that have economic significance and consequence,” stated Berkovitz starting at the 10:12 timestamp of the podcast. “I hope liquidity builds and that it will become part of the risk management tools that the private sector uses.”
However, the University of California, College of the Law, San Francisco J.D. graduate expressed skepticism over whether prediction market sports event contracts should fall under CFTC regulatory oversight. Citing the legal intent of the Commodities Exchange Act, Berkovitz opined that sports prediction markets don’t pass the “economic purpose” test that would validate it as a CFTC-regulated product under the CEA.
“When I was at the Commission, we had applicant ErisX, who wanted to trade NFL contracts because the [clearing] houses wanted to hedge their risk and they wanted to create a national market for this risk,” explained Berkovitz at the 11:36 mark of the video. ErisX would ultimately withdraw their application in 2021 to avoid an anticipated CFTC ruling that the company was offering unauthorized sports betting. “We found that there wasn’t any ‘economic purpose’ under the CEA to sports betting contracts… you can say it, but that doesn’t make it true.”
Despite the former Commissioner’s view on sports-related prediction market event contracts, current CFTC Chairman Mike Selig has a different reading on the Commodities Exchange Act. According to Selig, the CFTC enjoys exclusive jurisdiction over prediction markets, even on contracts that are related to sports outcomes. President Donald Trump agrees with Selig’s assessment, and recently posted his support for federally regulated prediction market exchanges like Kalshi.
Berkovitz is not alone in his critique of CFTC’s current role in overseeing prediction market event contracts. Earlier this month, former CFTC Chairman Gary Gensler likewise voiced opposition to the federal agency’s current interpretation of the CEA as well as its view on the 2010 Dodd-Frank Act.
Gensler, who has filed an amicus brief in Kalshi’s ongoing lawsuit against Ohio gaming authorities, is scheduled to appear Wednesday on The New Normal, a webcast hosted by Indian Gaming Association executive Jason Giles and Victor Rocha.
Both tribal gaming interests and the American Gaming Association concur that prediction market sports-related event contracts are illegal because they do not adhere to existing state and tribal gaming laws. The other side of the argument, supported by Kalshi and the CFTC, concludes that all prediction market contracts are federally regulated as “swaps” and are therefore exempt from state and tribal regulatory scrutiny.
Loading …
