June 5, 2025
| TO: Indian Gaming Association Member Tribes & Partners FROM: Ernest L. Stevens Jr., Chairman Jason Giles, Executive Director RE: Current Issues Update Date: May 5, 2025 |
| The Commodities Futures Trading Commission (“CFTC”), the federal agency most commonly known for its regulation of commodities like pork bellies, cattle, soy beans and corn, is allowing bets on sports and events (political, economic, even the weather!), under the auspices of labeling such bets as “futures contracts.” This extraordinary step takes the tribes and states out of the regulation of sports wagering. By allowing such contracts to exist on the market, the CFTC is permitting the conduct of unregulated sports betting, circumventing legal frameworks designed to protect tribal sovereignty, state rights, and consumer protection. Ongoing litigation to halt these bets (from States such Arizona, Nevada, New Jersey, and Maryland) and regulatory enforcement actions across multiple jurisdictions highlight the urgent need for clear federal guidance to resolve these jurisdictional conflicts and protect established gaming regulatory structures. The Senate Agricultural Committee just scheduled a JUNE 10th nomination hearing for Brian Quintenz, President Trump’s nominee to head the CFTC. Mr. Quintenz is a prior commissioner at the CFTC and is a former Board member of Kalshi, one of the more prominent companies engaged in these sports bets as futures contracts. Donald Trump Jr., is also a former Board member of Kalshi, and news reports state that he is still a paid advisor to Kalshi. Please have your Tribe write to your Senator to convey the Tribal gaming interests regarding Mr. Quintenz’s nomination and the policy decisions made at the CFTC that have allowed gambling to expand in the United States with zero oversight and public policy discussion. Overview of the CFTC and Events Contracts On February 5th of this year, acting CFTC Commissioner Caroline Pham announced a change in policy to the Commission’s approach to regulation and oversight of prediction markets, including sports-related event contracts: “Unfortunately, the undue delay and anti-innovation policies of the past several years have severely restricted the CFTC’s ability to pivot to common-sense regulation of prediction markets. Despite my repeated dissents and other objections since 2022, the current Commission interpretations regarding event contracts are a sinkhole of legal uncertainty and an inappropriate constraint on the new Administration. Prediction markets are an important new frontier in harnessing the power of markets to assess sentiment to determine probabilities that can bring truth to the Information Age. The CFTC must break with its past hostility to innovation and take a forward-looking approach to the possibilities of the future. The CFTC is the primary federal regulatory body governing the trading of commodity futures and options markets in the United States. Aside from just commodities, the CFTC now claims to oversee event contracts, which pay a contract holder if a particular event occurs by a certain date.[1] These contracts are typically used in prediction markets, financial markets, and hedging strategies. Their traditional purpose is to aggregate information and predict the likelihood of specific events for decision-making, planning, or financial tools, usually tied to events with clear, defined economic-related outcomes such as corporate earnings or quantifiable damage from natural disasters.[2] However, companies offering event contracts are expanding the class of tradable instruments to include sporting events and elections, among other things. The CFTC has yet to prohibit sports-related futures contracts outright, but it has expressed concern that such products may blur the line between regulated financial instruments and unlawful gambling. This was made even more apparent by publication of regulations in 2012 that outright prohibited event contracts that “involves, relates to, or references an activity that is similar to” gaming or any “activity that is unlawful under any state or federal law.” Nonetheless, with the increase in interest in sports wagering has come an increase in availability of sports-based event contracts on popular public platforms. Platforms listing contracts that closely resemble wagers risk running afoul of federal statutes, such as the Wire Act and the Indian Gaming Regulatory Act (“IGRA”), and may encroach upon regulatory jurisdictions traditionally held by Tribal and state regulatory authorities. Recent CFTC actions underscore the regulator’s interest in these concerns: the CFTC has recently initiated a formal review of sports event contracts proposed by the North American Derivatives Exchange and their compliance with the Commodity Exchange Act (“CEA”). So far, the CFTC has taken limited steps to engage tribal regulators to address potential jurisdictional overreach through calls and round tables, though some such meetings have been cancelled without reason. In looking to statutory and regulatory definitions of “wagering”[3] and “event contracts,”[4] it becomes clear that the existence of sports-based event contracts essentially creates an offer of unregulated and unlicensed Class III gaming.[5] Not only do these contracts pose a threat to Tribal sovereignty, but they also bypass the rules and regulations adhered to by Tribal governmental entities, including safeguards against problem-gambling, cheating, money-laundering, and underage gaming. These contracts create major jurisdictional issues. Availability of sports-based event contracts on public platforms is not geographically limited. In effect, this means that it is possible to take part in Class III gaming on Indian lands that is neither authorized under a tribal gaming ordinance and a tribal-state gaming compact, nor regulated by a tribal government with jurisdiction over the land on which gaming is being conducted. This appears to be a blatant violation of federal law and tribal governments’ “exclusive right to regulate gaming activity on Indian lands,” not to mention bargained for rights of exclusivity under tribal-state gaming compacts. Sale of sports-based events contracts not only infringes upon a burgeoning revenue stream to which tribal governments are rightfully entitled to access through the tribal-state compacting process, but also undermines the sovereign rights of tribal governments and states to negotiate meaningful and mutually beneficial gaming compacts. This impact cannot be easily overlooked considering current political climate between many tribal governments and their state counterparts. Tribal governments are not the only entities affected by the rise in quasi-sports wagering. State governmental entities, including state gaming commissions, have brought these matters to the courts and have requested that the CFTC take action against trading companies offering unlicensed sports pools. Thus far, the New Jersey and Nevada District courts have granted preliminary injunctions in favor of financial services company, KalshiEX, LLC (“Kalshi,”) which had asked the courts to temporarily halt the enforcement of state laws against them. Kalshi has also moved for a preliminary injunction in the Maryland District Courts, but the Court has yet to reach a decision on the matter.[6] Please note, however, that all such decisions have thus far been preliminary, and the courts have not yet heard the cases on the merits.[7] For now, it is not clear whether the Maryland District Court will follow the Nevada and New Jersey District Courts in granting Kalshi’s preliminary injunction, but this decision will be informative for other gaming commissions who may be involved in similar matters. More informative will be the courts’ decisions regarding these matters on the merits. Unless acted upon, the number of sports-based event contracts traded on the Derivatives/Futures market is only expected to grow, ushering in growing reason for concern for tribal gaming operators and regulators across the United States. It will be crucial moving forward for Tribal governments to closely follow this matter as it evolves in the CFTC and in the courts. Please contact Danielle Her Many Horses at dhermanyhorses@indiangaming.org with any questions or concerns with this Alert. [1] Contracts & Products, Commodity Futures Trading Commission, https://www.cftc.gov/IndustryOversight/ContractsProducts/index.htm#:~:text=An event contract%2C also known,damages caused by a hurricane [2] Id. [3] Wagering may be defined as the “staking or risking . . . something of value upon the outcome of . . . a sporting event . . . upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome.” 31 U.S.C. § 5362(1)(A).[4] Event Contracts may be defined as “derivative contract[s] whose payoff is based on a specified event [or] occurrence.” Contracts & Products, Commodity Futures Trading Commission, https://www.cftc.gov/IndustryOversight/ContractsProducts/index.htm#:~:text=An event contract%2C also known,damages caused by a hurricane[5] 25 C.F.R. § 502.4 (c)[6] See generally, Kalshiex LLC v. John A. Martin, et al., Case No. 25-cv-1283 (D. Md. Def’s Opp to. Mot. For Preliminary Injunction filed May 9, 2025).[7] See generally, KalshiEX, LLC v. Hendrick, et al., Case No. 25–00575, 2025 WL 1073495 (D. Nev. Apr. 9, 2025); and Kalshiex LLC v. Mary Jo Flaherty, et al., Case No. 25-cv-02152, 2025 WL 1218313 (D.N.J. Apr. 28, 2025). |