Understanding the Nature of ‘Gaming’ in Sports Betting
The recent investigation into Crypto.com and Kalshi’s sports event contracts raises a critical question: Are these contracts considered “gaming” under the definitions outlined in the Commodities Exchange Act? This inquiry is at the forefront of discussions among legal experts, including crypto lawyer Aaron Brogan.
CFTC’s Focus on Super Bowl Contracts
According to a report from Bloomberg, the Commodity Futures Trading Commission (CFTC) is scrutinizing the Super Bowl event contracts available on both Crypto.com and Kalshi. Brogan highlights that if sports betting does not qualify as gaming, the CFTC may lack the authority to block these platforms from self-certifying their contracts.
A Complex Legal Landscape
The issue is more intricate than it appears. Brogan references a ruling from last fall concerning Kalshi, which allowed the platform to proceed with election betting contracts. This decision was pivotal as it clarified that such contracts do not fall under the CFTC’s restricted categories.
The definition of “gaming” was particularly significant in this ruling. The presiding judge characterized gaming as “playing games” or “playing games for stakes,” citing discussions from Congress during the formation of the Commodities Exchange Act, where it was established that the prohibition on gaming was intended to encompass sports betting.
Legal Ambiguities and Definitions
While the judge’s perspective seems unfavorable for these event contracts, Brogan argues that this ruling is not legally binding—it’s considered dicta. Furthermore, he emphasizes that the legislative history is only pertinent when the law presents ambiguities.
To support his argument, Brogan refers to the Merriam-Webster dictionary, which defines gaming as “the practice or activity of playing games for stakes.” He interprets this definition to imply gambling rather than sports betting, suggesting that prediction markets could present compelling arguments if challenged in court. Some judges may be inclined to accept this textualist interpretation.
A Shift in CFTC’s Regulatory Approach?
Another important factor is the evolving nature of the CFTC itself. With Republican Caroline Pham now serving as the Commission’s Chair, there is speculation that a more laissez-faire regulatory approach may be adopted. Brogan notes that the previous Democratic leadership expressed skepticism towards retail-oriented event contracts, actively opposing platforms like PredictIt and Kalshi in their attempts to offer election-related contracts.
However, the extent of this regulatory shift remains uncertain. Brogan concludes by noting that if the CFTC continues to probe into Kalshi’s post-inauguration contracts, it may indicate a more stringent stance on specific event contracts despite a potential shift in regulatory philosophy.
In summary, the ongoing investigation into Crypto.com and Kalshi not only examines the legality of their event contracts but also reflects broader implications for the future of sports betting and regulatory approaches in this rapidly evolving landscape.
