SENATE COMMITTEE ON COMMERCE, SCIENCE, & TRANSPORTATION
SUBCOMMITTEE HEARING
For questions on the note below, please contact the Delta Strategy Group team.
On May 20, the Senate Committee on Commerce, Science, and Transportation Subcommittee on Consumer Protection, Technology, and Data Privacy held a hearing entitled “No Sure Bets: Protecting Sports Betting Integrity in America.” The witnesses in the hearing were:
- Bill Miller, President & Chief Executive Officer, American Gaming Association
- Mary Beth Thomas, Executive Director, Tennessee Sports Wagering Council
- Scott Sadin, Co-Founder & Co-Chief Executive Officer, Integrity Compliance 360
- Patrick McHenry, Senior Advisor, The Coalition for Prediction Markets
- Dr. Harry Levant, Director of Gambling Policy, Public Health Advocacy Institute
Below is a summary of the hearing prepared by Delta Strategy Group, which includes several high-level takeaways, followed by summaries of opening statements and discussion.
Key Takeaways
- Committee Chairman Cruz (R-TX) raised whether the Commodity Futures Trading Commission (CFTC) has the authority to unilaterally allow prediction markets to offer sports event contracts under the Commodity Exchange Act (CEA), noting that courts are currently split on the issue and that, unless Congress acts, the Supreme Court may ultimately have to decide.
- Multiple members of both parties expressed concern that prediction markets function as de facto sportsbooks despite claiming to offer financial instruments preempted from state and tribal gaming laws. Miller stated that prediction markets are effectively operating national sportsbooks without the regulatory constraints imposed on licensed operators.
- McHenry discussed that prediction markets are fundamentally different from sportsbooks because they operate as peer-to-peer exchanges where participants trade with one another, and the platform earns a flat transaction fee, rather than a house that profits when consumers lose. He stated that the CFTC is a capable regulator with authority to approve and unwind contracts, conduct market surveillance, and ban certain contract types.
- McHenry stated that coalition members comply with anti-money laundering (AML), know your customer (KYC), reporting, and surveillance requirements under CFTC oversight, which exceed many state regulations. He also noted that coalition members maintain an active ban list of insiders coordinated with the leagues, use technology like IC360 and geolocation surveillance, prohibit anyone capable of influencing the outcome of a contract from trading, and do not offer micro bets that are particularly vulnerable to manipulation.
- Thomas outlined that licensed sportsbooks in Tennessee must comply with extensive state and federal safeguards, including AML, KYC, Bank Secrecy Act (BSA), geolocation, and Suspicious Activity Reporting (SAR) requirements.
- Sadin recommended that platforms widen the parameters under which they deem activity reportable, and that integrity education curriculum be constantly refreshed to address emerging vulnerabilities and bad actors. He highlighted that integrity monitoring is effective because operators report information, leagues share intelligence, and regulators share casework, supported by collaboration, engagement, and transparency across stakeholders.
- Senator Rosen (D-NV) raised concerns with the CFTC’s self-certification process, which allows prediction markets to launch new contracts one business day after filing with no outside review.
- Miller discussed that Congress has provided exclusive gaming rights for Indian tribes and that tribal nations believe that opportunity is at risk because of prediction markets, which he stated have cost states and tribes close to $1 billion in lost tax revenue.
- Ranking Member Hickenlooper (D-CO) stated that the CFTC has no experience regulating sports betting and has failed to use the authority it does have to protect sports bettors from insider trading, market manipulation, predatory advertising to minors, and financial instability. He noted that Kalshi is offering loans to consumers so they can place bets using money they do not have, stating that he sent a letter to the CFTC urging them to reject Kalshi’s application.
OPENING STATEMENTS
Committee Chairman Cruz (R-TX)
Sports betting should be regulated, and, if at all, done in moderation. The opportunity to make money can tempt gamblers, and sometimes even athletes themselves, to guarantee a sure bet. These incidents sow doubt in fans’ minds. That is why sports leagues, casinos, and regulators must work together to identify, investigate, and root out manipulation. They are also grappling with a newcomer to the sports-integrity landscape: prediction markets such as Polymarket and Kalshi. Prediction markets have started offering sports contracts, which are just bets. There are real and serious questions about the legal propriety of this. At a minimum, any prediction market that offers event contracts on sports should be expected to join serious efforts to detect and prevent sports rigging.
Subcommittee Chairman Blackburn (R-TN)
The introduction of sports event contracts on prediction markets has exposed more people to sports betting. While prediction markets represent financial innovation across many sectors, there are real concerns that they function much like traditional sports betting without the enforcement of state regulators and AGs. Sports betting is often a source of entertainment for responsible adults, but it has risks. As we look to protecting the integrity of U.S. sports and protecting the most vulnerable, including our young people and those at risk of addiction, it will take all of us working in good faith, from state regulators to integrity monitors, prediction markets, and online sportsbooks.
Ranking Member Hickenlooper (D-CO)
Sports betting accounts for forty percent of trades on Polymarket and ninety percent on Kalshi. Online sportsbooks like FanDuel and DraftKings have started their own prediction markets to, in some way, bypass or negotiate state laws. Prediction markets have been in headlines recently for permitting government officials to use inside information to place bets on events relating to war and assassination. Prediction markets claim that their sports-event contracts pose the same risk to consumers as online sports betting, yet they say they are investments and not subject to state or tribal gambling laws. The CFTC has no experience in regulating sports betting. The CFTC has failed to use the authority it does have to protect sports bettors from insider trading, market manipulation, predatory advertising, and financial instability. This workaround allows prediction markets to skirt state consumer protection laws. Prediction markets fail to protect young people who are particularly vulnerable to gambling addiction.
Bill Miller, AGA
Since the Professional and Amateur Sports Protection Act (PASPA) was reversed in 2018, forty states and D.C. have worked to build sports betting frameworks centered around integrity, consumer protection, responsible gaming, and accountability. Gaming integrity frameworks are now being undermined by so-called prediction markets that are evading state, local, and tribal authorities. The legal state- and tribal-regulated gaming market has proven safeguards. Licensed sportsbooks operate under strict rules regarding age verification, AML compliance, geolocation, integrity monitoring, responsible gaming, advertising standards, and SAR requirements. Prediction markets do not comply with most of these important regulatory protections. Despite messaging designed to mislead policymakers and the public, they are increasingly being exposed as backdoor sports betting operations. Prediction markets are evading state and tribal authorities and have cost those states and tribal authorities close to $1 billion in lost tax revenue that would otherwise go to social services. The CFTC was created to regulate markets critical to the functioning of the U.S.’s economy, not Monday Night Football. Prediction markets, aided by a rogue CFTC, are making a mockery of Congressional intent.
Mary Beth Thomas, Tennessee Sports Wagering Council
A sportsbook’s internal controls must have procedures to immediately notify TSWC of unusual or suspicious wagering activity, including anything that could indicate match fixing, event manipulation, or the misuse of inside information. Although it may seem like there has been a growth of cases regarding athlete manipulation or information sharing, legal and regulated sports betting has greatly increased the volume of data available, which has led to a higher number of incidents being reported and addressed. Criminal behavior can be difficult to completely prevent, but it can often be detected, investigated, and enforced with the right tools and collaboration.
Scott Sadin, IC360
Since the Supreme Court’s 2018 decision in Murphy v. NCAA, a robust framework has developed across leagues, operators, regulators, law enforcement, and integrity providers like IC360. That framework has identified, investigated, and resolved a meaningful number of integrity matters, from suspicious wagering patterns to the misuse of insider information to active match fixing. The infrastructure exists and has worked, but, like any vertical within a complex industry, the integrity ecosystem has room to improve and mature as the surrounding space develops and evolves. The sports betting and prediction market ecosystems involve a wide range of stakeholders, and no single participant can address its integrity challenges alone. The integrity of competition depends on the connective tissue between those participants, the quality of information sharing, the depth of collaboration, and the consistency of transparency. Integrity monitoring is only effective because operators report information, leagues share intelligence, and regulators share casework. Education is only impactful because leagues and institutions invest the time and attention of the people closest to competition.
Patrick McHenry, The Coalition for Prediction Markets
Casinos, traditional online sportsbooks, and prediction markets are fundamentally different products governed by different legal frameworks and subject to different regulatory structures. Conflating the two does little to advance our shared goal of protecting consumers. In a casino or sportsbook, the house sets the odds and profits when customers lose. In a prediction market exchange, participants trade with one another while the platform earns transaction fees for facilitating the market. Prediction markets benefit from greater participation, liquidity, and more accurate information, not from consumers losing money. Sports event contracts are only one part of a much broader market. These products are part of a broader trend toward democratizing access to financial and informational tools that were once limited to institutions and large market participants. Coalition members share leagues’ interest in protecting sports integrity and want to work collaboratively to address concerns and, where appropriate, share information and data that help protect the ecosystem. Unlike many sportsbooks and unregulated operators, coalition members do not offer micro bets that are particularly vulnerable to manipulation. Coalition members are federally regulated and overseen by the CFTC and operate under extensive compliance obligations, including real-time surveillance, trade reporting requirements, BSA compliance, KYC, and AML controls, and comprehensive rulebook review by federal regulators. They have extensive ongoing monitoring, and regulated prediction markets prohibit trading not only by individuals with material public and non-public information, but also by anyone capable of influencing the outcome of a contract. Customers on our platforms are also subject to uniform federal protections that apply nationwide, exceeding the consumer protections of casinos and sportsbooks, which are governed by a patchwork of state laws.
Dr. Harry Levant, Public Health Advocacy Institute
Prediction markets are gambling. They meet the very basic definition of gambling, which is betting or staking something of value with the consciousness of risk and the hope of a gainful outcome in a game, contest, or uncertain event whose result may be determined by chance or accident. There is a much broader issue here, which is how the sports leagues, including the NCAA, the owners, and the players, have partnered for enormous financial gain with the gambling industry and prediction markets to sell their real-time data to the gambling industry to create micro betting, same-game parlays, and prop bets.
DISCUSSION
Committee Chairman Cruz (R-TX): Are there certain prop bets that sportsbooks should not offer because of the integrity risks they pose? Miller: The regulated markets in each of the individual states have made determinations regarding prop bets. There has been a movement to limit or eliminate prop bets in those states, and those states are best positioned to make determinations about which props should or should not be allowed.
Committee Chairman Cruz: If a sports league tells a prediction market not to offer certain event contracts, such as those that resemble prop bets, should the prediction market honor that request? McHenry: Yes, and they have.
Committee Chairman Cruz: Do you have any suggestions for improving the system to make it easier to catch game manipulation? Sadin: Collaboration, engagement, and transparency across stakeholders that operate in this space would be beneficial. I would urge platforms to broaden the parameters under which they deem suspicious activity may have occurred for reporting purposes. From an educational standpoint, routine training will not be sufficient. This is a new frontier with emerging vulnerabilities and bad actors that are constantly innovating. We need to make sure that the curriculum is refreshed and constantly reinforced.
Committee Chairman Cruz: When Congress debated Dodd-Frank, some Senators expressed concern that event contracts could become a vehicle for sports gambling. Is that not what has come to pass? McHenry: The CFTC argues that sports event contracts fit the CEA’s definition of a swap because sports outcomes have economic consequences and connectivity. You can see the economic impact on whether a team gets a playoff game in their city or consider the T-shirt manufacturer affected by a Super Bowl outcome. In my experience with Dodd-Frank on the House side, we did not have any substantial discussion in the House Financial Services Committee about the nature of swaps, but in the Agriculture Committees, both here in the Senate and in the House, a broad new definition of swaps was established, and that authority was given to the CFTC. Former CFTC Chair Gensler wrote rules encompassing a wide array of swap definitions.
Committee Chairman Cruz: What about the specific question of what is the economic consequence of whether a pitcher throws a ball or a strike? McHenry: It is up to the consumers to decide that under the swap definition, and it will be for the courts and Congress to decide whether or not they agree. We welcome Congress’s input here and the CFTC’s rulemaking on these definitions.
Chairman Blackburn (R-TN): How are your members engaging with the states? Why would your members not engage with the states to make certain that consumers are protected? McHenry: Our members adhere to higher standards than the average state standard. In the states that have legalized gambling, there are a dozen that do not ban advertising to children. Of the 35 states that allow sportsbooks in their state regimes, the CFTC requires KYC, AML, and market surveillance. The regulator approves contracts before they go on the market and can unwind them within 24 hours if fraudulent activity is suspected. The CFTC can ban certain types of contracts, is engaged with the leagues on data sharing, and our members use products like IC360 to ensure they police against insider trading and fraudulent activity. We have high standards for the members of our coalition. To say that there is no federal standard in this realm is not accurate. In the broader digital realm you are describing, it is a very complicated space. For these regulated prediction markets, they are using new technology to access a very old type of exchange: a swaps market that has been around for 100 years, regulated first at the state level and then at the federal level with the creation of the CFTC. This is a time-honored framework with new contracts offered through new technology, and with that comes the challenge of how it develops. The rulemaking regime currently underway at the CFTC is very important to get right so that we have the best consumer protections available.
Chairman Blackburn: Do your members advertise to youth? Do you advertise on social media platforms? Miller: We do not. We do have members that advertise on social media platforms; McHenry: No. We do advertise on social media platforms, and we welcome additional tools. I share your goals of protecting kids online. We want enhanced tools, and we can implement them on those platforms.
Ranking Member Hickenlooper (D-CO): If prediction markets continue to operate as unlicensed sportsbooks paying no taxes, is that going to reduce the resources available in states? Miller: What we have seen is a tsunami created by prediction markets operating in a completely unregulated manner. There is not one person on this panel, or anyone involved in Dodd-Frank in 2010, who believed that the legislation was enabling or creating a federal department of gambling. Prediction markets are absolutely not competent to handle this responsibly, and they are hurting tribes and states financially.
Senator Curtis (R-UT): What is a prediction market? What exactly happens when an event contract is purchased? How is that not gambling? How is this different from a sports wager or roulette? McHenry: It is an exchange. It falls under commodities regulation and is called a swap. When grain futures were introduced over 100 years ago, they were viewed much the same way. This involves an uncertain outcome on whether your crop will come in the fall, and you can hedge against it in the marketplace based on an uncertain event driven largely by acts of God, Mother Nature, and crop yields. In a sportsbook, the house sets the line and profits when the consumer loses. In an exchange like this, two individuals engage with each other and pay a flat fee for that engagement.
Senator Baldwin (D-WI): How does the regulatory framework tribes abide by compare to the framework for prediction market platforms? Miller: We are one of the most highly regulated industries in the country, from internal controls to licensing, auditing, and active oversight by state and tribal governments. This stands in stark contrast to prediction markets that are now entering virtually every state, which have chosen not to allow gaming of any kind, whether tribal or commercial.
Senator Baldwin: Are coalition members willing to undergo review and regulation by state and federal regulators comparable to tribal gaming operations? McHenry: These are fundamentally different products with fundamentally different business models. Our members are willing and do submit themselves to state reviews, just like every other federally regulated financial product, from grain futures to an event contract on who will win the next Governor’s race. Taxes are also paid at both the federal and state level as a result of those contracts. Our member companies have enhanced surveillance greater than any casino or sportsbook in the country. We conduct more market surveillance, ban users proactively rather than reactively, and operate under a different business model. No matter what happens with a contract, there is a small fee to the exchange. That is fundamentally different from a sportsbook, which profits from losers rather than winners.
Senator Schatz (D-HI): Are there some categories of bets more likely to threaten the integrity of a sport than others? Sadin: Yes, I would categorize a couple of different market types as more vulnerable or susceptible to manipulation. Player props, micro betting, and in-game markets are circumstances in which an individual or a singular person may have more impact than a group would.
Senator Schatz: How significant are the integrity and consumer protection concerns associated with micro betting and proposition bets, particularly given that smaller, more specific wagers may be easier for players or outside actors to manipulate? Do these types of bets raise heightened concerns around addictive behavior because of their fast-paced, algorithmically driven nature? Sadin: Yes, that is fair to say. It is nuanced and there is certainly a continuum, but that is accurate. I would still be a strong proponent of wrapping regulation around those types of markets rather than pushing that activity offshore.
Senator Schatz: What is the problem of illegal offshore sportsbooks and how they impact the integrity of sports in the U.S.? Miller: It has been a challenge. It is very easy for people, both of age and underage, to access the offshore illegal marketplace. There is an important role for law enforcement at the federal level, the State Department, and others who can put pressure on some of the countries that host and facilitate illegal sports betting operations. For us, it represents $700 billion that leaves the pockets of Americans and goes into offshore online illegal betting operations without any of the consumer protections of the legal market.
Senator Cantwell (D-WA): If prediction markets are allowed to keep operating unchecked, does this pose an existential threat to both tribal sovereignty and tribal jurisdictions, and what can Congress do to better protect Indian gaming? Miller: As someone who was involved in Dodd-Frank and recognizes that it was a response to a financial crisis created by lax or nonexistent regulation, it is hard to believe that anyone could derive from that legislation the idea that we could create a national sportsbook run through the CFTC. It is hard to imagine that argument being made. In fact, there were federal statutes already on the books when Dodd-Frank was created. The Indian Gaming Regulatory Act (IGRA) established the framework for Indian gaming. The Professional and Amateur Sports Protection Act (PASPA) was struck down in 2018. The Wire Act. All of these were federal statutes that should have been examined and potentially modified if the CEA was going to be amended to create a federal department of gambling. It was never intended to be that. When the Supreme Court decided Murphy v. NCAA in 2018, even the Court did not recognize there was a backdoor opportunity for the sports betting industry through prediction markets. There is real harm here. Tribal nations are concerned.
Senator Rosen (D-NV): Is there a fundamental difference between a sports bet and an event contract? What is the risk of allowing prediction markets to circumvent meaningful, mandatory consumer protections? Levant: There is no discernible difference. People are using prediction markets as another form of gambling, and you are right. It skirts and circumvents all the rules, including rules designed to keep people safe at the state level, and completely disregards them.
Senator Rosen: Can you describe the guardrails and compliance measures required of legal sports betting operators today, including age verification, exclusion programs, licensing, geolocation, anti-money laundering, responsible gaming safeguards, cybersecurity, integrity monitoring, and coordination with regulators, law enforcement, and sports leagues? What requirements are currently imposed on legal sportsbooks to protect consumers and monitor suspicious activity? Is it correct that prediction markets are generally not subject to those same standards or oversight requirements? Are prediction markets currently required to comply with any of those same safeguards? Thomas: You must be 21 or over to wager. Sportsbooks must make available and enforce exclusionary measures for those who choose not to gamble. Our office oversees a statewide exclusion list to make sure that information is communicated. Credit card deposits and extensions of credit are prohibited. We review all markets before they are offered, and leagues and teams can request that certain markets not be allowed if they pose an integrity risk. That is correct, for the most part. No, not to my knowledge.
Senator Rosen: When products that are functionally identical to legal sports betting are allowed to operate completely outside of state and tribal laws and regulations, what protections, oversight mechanisms, and accountability structures are they able to circumvent? Is this a fair and level playing field? Miller: I do not believe it is a fair and level playing field. Obtaining a gaming license is a privilege. It requires significant due diligence regarding the suitability of that licensure.
Senator Rosen: What does the nationwide litigation landscape look like today, and how long might it take for these questions to be resolved if they are left to the courts? What are the risks if Congress does not step in to reaffirm that states are the primary regulators when it comes to gaming, and that Congress never intended the CFTC to regulate gambling nationwide? Miller: It was never Congress’s intent to create a federal department of gambling through the CFTC. The fact that we have federalism in this country, that states have rights of self-determination and tribal nations similarly, is how we have created a system that works in America. There are 8,400 regulators working every day to ensure integrity in the matches, protect consumers, and ensure that the state or tribe benefits from this system. As it relates to litigation, we are currently in nine of the twelve federal circuits. Forty-one state AGs have written to the CFTC saying to stop and stand down, that this is not its purview. These are AGs that span the full political spectrum, from the farthest left to the farthest right, all agreeing that the states have the right to regulate gaming. They are spending extraordinary amounts of money on litigation against Kalshi, against prediction markets, and now against the CFTC, which has inserted itself as a party, using taxpayer dollars, to assert control and dominance in a space where it has no business operating.
Senator Rosen: Are there other federal or state regulators that allow the entities they regulate to approve their own products, like the self-certification process? Miller: The short answer is no. I have tried to find another agency at the local, state, or federal level that allows regulated entities to self-certify compliance with government protocols, but I could not find one.
Senator Lujan (D-NM): Has Congress provided exclusive gaming rights for Indian tribes? Is it your belief that some of these sports betting and predictive market platforms are in violation of state and federal gaming laws by operating on tribal land? Miller: Congress has. I do believe that is true.
Senator Lujan: Is there agreement on the panel that Congress needs to weigh in here? Miller: Congress needs to reaffirm the rights of states and tribes; Thomas: I agree; Sadin: Anyone offering markets on sports, no matter what, should be engaging in some type of controls to make sure the integrity of the sport is preserved; McHenry: We need to see the CFTC rulemaking currently underway, and if Congress wants to step in and assert its authority, we welcome that conversation. For now, the Third Circuit has given prediction markets the capacity to offer these contracts.
Senator Lujan: Should these platforms be able to advertise to minors? McHenry: No, and the members of our coalition do not do so. There is a firm ban at eighteen. Congress can debate what is appropriate across securities, commodities, and other areas, and we would like to be engaged in that conversation. In our markets, our members comply with market surveillance, AML, and KYC requirements. All our members maintain an active ban list of individuals, coordinated with the leagues, to ban insiders as designated by the organizations they work with or around. We maintain that through technology like IC360 and other surveillance techniques, like geolocation. On the tribal issue specifically, it is very important that anyone engaged with tribes respect their treaty rights, which have been longstanding in this country and should be affirmed by the courts and Congress.