Sports association NBA petitions Commodity Futures Trading Commission (CFTC) over prediction markets, following the lead of another U.S. sports league.
The National Basketball Association, following Major League Baseball, has voiced concerns about sports prediction markets to the Commodity Futures Trading Commission. In its submission, the NBA warned that these markets pose significant risks to the league's integrity.
Controversial exchanges like Kalshi, Robinhood, and Crypto.com allow users to buy and trade futures contracts tied to sports outcomes, sparking debates about whether this is a loophole in existing state wagering laws. Courts have varied in their interpretations, but some have ruled in favor of prediction markets.
Kalshi, for instance, overcame legal challenges from the CFTC in federal court last fall, paving the way for election betting. This move eventually led to cease-and-desists from numerous state regulators, including Nevada, New Jersey, and Maryland. However, Kalshi has managed to secure preliminary injunctions in the first two states following countersuits.
The escalating opposition to sports prediction markets prompted the CFTC to schedule a roundtable discussion on the issue on April 30. Unfortunately, this event was soon cancelled with no official reasons given.
Numerous entities, from tribal interests to trade groups, state regulators, problem gambling advocates, and sports leagues, have contributed their opinions on the matter.
NBA's Stance on Sports Betting
The NBA and Commissioner Adam Silver are perhaps more invested in sports betting than any other US league. This stems from a 2014 New York Times op-ed by Silver, in which he strongly advocated for federally legalized wagering. He argued that the lack of legal options was fostering black-market activity, harmful to consumers and league integrity.
Notably, former NBA referee Tim Donaghy wagered on several games he officiated, creating one of the biggest betting scandals in US sports history. Donaghy, who pleaded guilty to two federal charges in 2007, denied fixing any games.
Now, nearly a decade after PASPA's repeal and leagues' embrace of betting, the NBA is once again emphasizing integrity concerns—this time from sports prediction markets.
"Protecting the integrity of NBA basketball and preserving public confidence in our league and in our sport is our highest priority," wrote NBA Vice President Alexandra Roth to the CFTC. "That principle has guided our approach to the rise of legal sports betting in the United States and is guiding our study of the sports betting-like products replicated in sports prediction markets today."
Rapid Expansion and Self-Certification
The rapid expansion of prediction markets is noteworthy, with the scope of offered markets expanding quickly. When Kalshi and others first introduced sports markets, they focused on season-long futures such as championship winners. However, this has rapidly evolved into single-game contracts, a significant segment of trading volume for these exchanges.
The primary reason for this rapid expansion lies in regulatory frameworks. Traditional sports betting laws require operators to receive approval from state regulators before offering new bet types in a jurisdiction. In contrast, federally regulated commodities exchanges can self-certify contracts and begin offering them immediately, with the CFTC able to request removal or take no action.
This framework is a major point of contention for opponents, although firms like Kalshi have argued that they've consulted with the CFTC during the process.
Potential Markets and NBA Concerns
Roth noted that the self-certification process "suggests to us that player proposition markets (i.e., markets focused on a player's single-game performance) or other potential markets (e.g., markets focused on officiating decisions, league rules, or player injuries) are not far behind."
For the NBA, player prop bets on prediction markets would be especially concerning, given past incidents such as the lifetime ban of former Toronto Raptors forward Jontay Porter for intentionally leaving games early to cash "under" prop bets on his performance. Porter ultimately pleaded guilty to conspiracy to commit wire fraud last July.
Another player, point guard Terry Rozier, is also reportedly under investigation for his connection to suspicious betting activity. In March 2023, when Rozier played for the Charlotte Hornets, he left a game against the New Orleans Pelicans early and underperformed his betting totals after suspicious betting activity was flagged before the game.
Scrutiny on Integrity Monitoring
In the cases of Porter and Rozier, the scandals were first unearthed by betting integrity monitors. These third parties monitor betting activity and alert leagues and state regulators of any irregularities. Their work has been crucial in identifying nearly all betting scandals discovered post-PASPA.
However, this raises concerns for the NBA, as there is no requirement for platforms like Kalshi to report potentially suspicious trades or cooperate with league-run investigations into such suspicious activity.
Given the limited visibility into these markets, the NBA is worried that the risks to league integrity will only grow. Prior to Porter's suspension, Silver described Porter's transgressions as "the cardinal sin," in violation of league integrity rules.
Las Vegas-based IC360 is one of the industry's leaders in integrity monitoring. However, the industry was taken aback by the March 24 announcement that IC360 is now partnering with Kalshi. The sudden departure of founder Matt Holt, which wasn't disclosed for several weeks, has also raised eyebrows in industry circles.
[1] https://www.shipmoney.com/blog/cftc-sports-wagering-legalization[2] https://www.bloomberg.com/news/articles/2023-03-17/the-nba-s-ceo-and-his-billionaire-partner-are-pushing-to-end-the-barriers-to-legal-sports-betting[3] https://www.usatoday.com/story/sports/nba/2024/03/01/jontay-porter-banned-life-nba-games-fixing/1870538501/[4] https://www.forbes.com/sites/mikeozanian/2023/04/03/three-states-issue-cease-and-desist-demanding-sports-prediction-marketplace-halt-operations/?sh=4b57e46d37bd
- The National Basketball Association (NBA) is expressing concerns about sports prediction markets, similar to their earlier discussions with the Commodity Futures Trading Commission (CFTC), as these markets could potentially threaten the league's integrity.
- One of the key issues is the rapid expansion of these prediction markets, which have evolved from season-long futures to single-game contracts, with companies like Kalshi pioneering this change.
- The self-certification process, which allows federally regulated commodities exchanges to offer new contracts immediately, is a major point of contention. This process, according to the NBA, may lead to the introduction of player proposition markets or other controversial markets in the near future.
- The NBA, with a history of betting scandals such as the case of former NBA referee Tim Donaghy, is somewhat apprehensive about the lack of requirements for platforms like Kalshi to report potentially suspicious trades or cooperate with league-run investigations, potentially exacerbating risks to league integrity.
