Are The Walls Closing in for the Prediction Industry

May is not off to a good start for the prediction market industry.

It started with a letter sent to the CFTC by a group of 41 attorneys general, asking it to hand regulation over sports prediction markets to the states. The bipartisan effort was led by New Jersey, which is also fighting the industry in court.

As news of the letter broke, Texas Lt. Governor Dan Patrick ordered the state Senate to investigate how to close legal loopholes that allow prediction markets to operate in the state. While the order doesn’t ask for any legal action, it shows cracks in Republican support for the industry.

More attorneys general are joining the effort

The recent letter sent to the CFTC from attorneys general from across the US is not the first. Last year, a group of just over 30 sent a similar request to the regulator, but it was working without a chairman at the time. With Michael Selig now in charge, the request has been resubmitted, with several more states jumping on board with the effort. 

New Jersey Attorney General Jennifer Davenport led the recent effort and had strong words for Selig in the letter. 

Prediction markets have no right to offer sports gambling in New Jersey in violation of the bedrock rules that other wagering operations follow. States have had longstanding authority to oversee all gaming within their borders, which is important to protect residents from gambling addiction and deter insider trading. We call on the CFTC to stop their federal power grab and recognize this authority belongs with the States.

Texas finally weighs in

While the letter from the 41 attorneys general shows how many states are currently opposed to federal regulation of prediction markets, Texas has largely remained on the sidelines. The conservative stronghold has been supportive of President Trump, whose family has been a key ally for the prediction industry. 

Patrick has been a long-time opponent of sports betting, but his stance on prediction markets remains surprising. The move will alienate him from the President ahead of an election crucial to the Republican Party. 

The only reason to do that would be to win over voters, who remain wary of the industry. That not only puts the industry on notice but also gives Trump another reason to reconsider his support for it. 

Will the prediction industry decide to negotiate?

The letter from the AGs and the order in Texas don’t carry any real legal threat for the industry, but do show its increasing unpopularity. 

When the battle over prediction markets started as Kalshi rose to prominence, the industry used aggressive rhetoric and made grandiose statements about its importance. This hasn’t resonated well with the public or US courts, leading the industry and CFTC to attempt to soften it over the last few months.

While lawmakers and the public are concerned about it, many believe it should be regulated rather than banned altogether. That leaves an opening for the industry to negotiate with states to ensure its survival. 

With public and political support waning, don’t be surprised to see a shift in tone from the prediction industry in the near future.