Amelia Schafer
ICT
As the prediction market industry and federal regulators battle over who should oversee the new industry, the answer is painfully obvious to tribal gaming experts: If it walks like a duck, and talks like a duck, it’s probably a duck. But prediction market services, which allow for consumers to place “bets” on real-world events such as elections or reality TV shows, continue to argue that they aren’t gaming.
A new House Bill, H.R. 3633, nicknamed the “Clarity Act” provides the framework needed to enact a regulatory system for the sale and distribution of online commodities, which include cryptocurrencies and prediction markets “investment contracts.” The bill is mostly aimed at cryptocurrencies such as Bitcoin, but the outlined framework could dramatically alter the future of all digital assets, while doing nothing to stop the loophole prediction markets are utilizing to allow them to skirt gaming regulations.
Predictions markets, which include apps like Polymarket, Kalshi and Rocket, currently offer services mirroring sports betting gambling operations, while refusing to define these services as gaming. Historically, authority over the legalization, taxation and regulation of casinos, lotteries or sports betting have fallen to state and tribal governments, but they’re not granted the same authority when it comes to prediction markets.
Right now, the federal Commodities Futures Trading Commission regulates prediction markets, meaning they’re not regulated as a gaming service. The Clarity Act would actually expand the commission’s authority over online commodities and give it a larger role, increasingly overlapping with the regulation of gambling activity, which it should not have the authority to do, according to gaming leaders.
What tribal leaders want is for the Clarity Act to explicitly prohibit prediction market platforms from offering sports betting, casino-style games, and other forms of gaming regulated by states and tribal governments and to make it clear that decentralized finance, better known by its abbreviated form “DeFi,” cannot be used to evade, override, or preempt state, tribal, or federal gaming laws.
Until then, tribal leaders and organizations, including the Indian Gaming Association and California Nations Indian Gaming Association, are urging senators to vote no on the act.
“They’re defining a square peg as a round hole,” said Mark Macarro, president of the National Congress of American Indians and chairman of the Pechanga Band of Indians. “It’s like ignoring the bull in the china shop. The whole issue comes down to, there is gambling going on here. … They shouldn’t be allowed to get away with this, but they are.”
Indian gaming leaders said prediction markets are online gambling and should be regulated as such, but that regulation needs to happen with tribal sovereignty in mind. Indian Gaming Association Chairman David Bean, a citizen of the Puyallup Tribe of Indians, testified Tuesday before the House Committee on Agriculture about how these markets are dangerous for Indian Country.
Without changes added to the Clarity Act to provide guardrails, the bill could create new pathways for prediction market operators to continue to expand their digital gambling operations while continuing to undermine state authority and tribal sovereignty, said California Nations Indian Gaming Association Chairman James Siva.
Organizations like the Indian Gaming Association support H.R. 7840, the Event Contracts Enforcement Act, instead of the Clarity Act.
“This is an incredible attempt to circumvent our tribal laws and state laws and undermine the integrity of sports betting and casino-style gambling,” Bean told ICT. “The [Commodities Futures Trading Commission], we pointed out the fact that it’s a one-man show. This one-man show has taken the [commission] from props to crops all on his own with no new laws from Congress. It undermines tribal sovereignty and undermines the jobs that we’ve created and the agreements that we have in place with our state partners.”
Commission Chairman Micheal Selig is the only member of the commission, which usually has five members, all appointed by the president.
Prediction markets illegally avoid local taxes, fees, and regulations, the Indian Gaming Association said in a letter provided to ICT. Companies have used these profits to hire attorneys, lobbyists, and public relations firms. They’ve also formed the Coalition for Prediction Markets and used it to hire two former members of Congress to lobby against the enforcement of tribal and state gambling laws and for federal preemption, the letter said. Federal preemption refers to the legal doctrine outlining that federal laws supersede state and local laws, which is a huge part of why these markets are able to operate in states without their consent.
The hearing also included testimony regarding a lack of resources available to the Commodities Futures Trading Commission, which could limit its ability to properly oversee the rapidly growing prediction market industry, according to lawmakers like Massachusetts Senator Elizabeth Warren, who is a Ranking Member of the Committee on Banking, Housing, and Urban Affairs.
“We pointed out the fact that we [tribes] actually have systems that can and will regulate sports betting and casino style gambling,” Bean said. “There will be a future hearing. Hopefully, it’s expanded to include some more tribe-friendly, state-friendly folks.”
Some congressional representatives shared data showing that children ages 11 to 17 have downloaded prediction market apps, which they argued could be tied to predatory marketing campaigns geared toward children by Kalshi, one of the largest prediction market platforms.
Kalshi did not immediately respond to requests for comment from ICT.
“We also pushed back and alerted them to the fact that one of the CEOs talked about how they equated these fixed-market contracts to financial literacy, which is both misleading and incredibly dangerous,” Bean said. “So there’s a lot of need to address those issues as well, a lot of unanswered questions.”
The overarching issue
Prediction markets allow individuals to place bets on elections or other real-world events and are framed as an exchange of an event contact rather than traditional gambling. By purchasing a bid, a consumer is engaging in an “exchange” rather than a typical bet, according to these platforms.
“In spite of an express and clear prohibition in the existing federal law that gaming is a prohibited activity for contracts under the [Commodities Futures Trading Commission], we see this gambling going on, and the commission, which is a commission in name only, is completely, without question, in the back pocket of the industry,” Macarro said. “There is no regulation going on. In any gaming, we have multiple layers of regulation, starting with a tri-zone regulation, usually there’s a state kind of shared jurisdictional regulatory role, and then there’s interfacing regulatory agency with the federal government, including the FBI and the [National Indian Gaming Commission]. But there’s nothing with a 50-50 consensus, with one guy.”
But tribes and states are pushing back. Kalshi itself is involved in lawsuits in at least 12 different states, many of which include tribal nations as plaintiffs. Because in many states, the act of allowing gambling services within the state is a violation of promised gaming exclusivity to tribes within.
Online gambling threatens tribal gaming; tribes hope to fix that
California, where the Pechanga Band of Indians is located, is one of those states, Macarro said. This exclusive right has created a massive market for them, allowing for the creation of generational wealth, new community services and more. But all of that is threatened entirely by prediction markets, tribal leaders said.
“There are other non-tribal actors in the state and there the law is really narrow for them,” Macarro said. “Sports betting itself is illegal in California. It’s illegal in several states, and yet they are sports betting in California because they’re saying this is a federal swap, this contract swap thing, and it’s federal law, and it doesn’t matter what the state law says.”
But the Indian Gaming Regulatory Act is also federal law, leading tribal leaders to worry which federal law will win out, Macarro said.
“Will it be the Indian Regulatory Act, which carves out this model of tribal-state compacts, or will it be the Dodd Frank Act, the Commodity Exchange Act, which was amended by Dodd Frank,” Macarro said. “And that’s [the Dodd Frank Act] what the [Commodities Futures Trading Commission] is operating under. So, of course, the answer is we think it’s clear, and so I think there are a couple cases out there right now that are challenging.”
President Trump has yet to appoint a chairman for the National Indian Gaming Association, something Bean told ICT has certainly not helped in the fight against prediction markets.
Meanwhile, Commodities Futures Trading Commission Chairman Selig is working to gather votes in support of the Clarity Act, Bean said, which could hit the House floor in the near future. But the Indian Gaming Association is ready, Bean said.
“As soon as you shine light on a problem, the roaches scatter,” Macarro said. “Well, that’s the part I’m looking forward to.”
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