NBA becomes second US sports league to petition CFTC over prediction markets
The National Basketball Association is now the second major US sports league to pen a letter to the Commodity Futures Trading Commission regarding sports prediction markets, which was made public on the CFTC site Thursday. Major League Baseball submitted comments on 7 March.
In the submission, NBA Vice President Alexandra Roth warned the CFTC that prediction markets pose substantial integrity risks. The federally legal exchanges such as Kalshi, Robinhood and Crypto.com allow users to buy and trade futures contracts tied to sports outcomes. Opponents insist that this is simply a workaround to existing state wagering laws, but several courts have disagreed thus far.
Kalshi defeated legal challenges from the CFTC in federal court last fall to offer election betting. Since then, the exchange and others have moved into sports, resulting in cease-and-desists from numerous state regulators, including Nevada, New Jersey and Maryland.
After countersuing in all three of those states, Kalshi so far was won preliminary injunctions in the first two. In response to the rising opposition, the CFTC had scheduled a 30 April roundtable discussion on the issue. But it was unorganised from the start, and was never publicly confirmed. The roundtable was ultimately canceled in late April with no details as to when or if it might be rescheduled.
In the meantime, comments have continued to pour in, and the submissions range from tribal interests to trade groups, state regulators, problem gambling advocates and now sports leagues.
NBA, sports betting closely aligned
The NBA and its Commissioner Adam Silver are perhaps more connected to sports betting than any other US league. This stems in part from a 2014 New York Times op-ed penned by Silver pounding the table for federally legalised wagering, a full four years before PASPA would be overturned by the Supreme Court and long before the NFL or MLB would even acknowledge sports betting.
In his article, Silver argued that the lack of legal options was driving black-market activity, which was bad for consumers and league integrity. Notably, former NBA referee Tim Donaghy wagered on several games he officiated, creating one of the biggest betting scandals in US sports history. Donaghy, who pleaded guilty to two federal charges in 2007 related to the investigation, denied fixing any games.
Now, nearly a decade after PASPA’s repeal and leagues’ embrace of betting, the NBA is again citing integrity concerns, this time from prediction markets.
“Protecting the integrity of NBA basketball and preserving public confidence in our league and in our sport is our highest priority,” Roth wrote to the CFTC. “That principle has guided our approach to the rise of legal sports betting in the United States and is guiding our study of the sports betting-like products replicated in sports prediction markets today.”
Rapidity of new markets, self-certification
In just a few months, the speed in which prediction markets are expanding their menus is noteworthy. When Kalshi and others first rolled out sports markets, they did so with season-long futures such as championship winners. But that has quickly morphed into single-game contracts, and those are now among the top markets for the exchanges in terms of trading volume.
The above chart, reported by Dustin Gouker from the Closing Line, shows trading volume on Kalshi contracts from 26-27 April. NBA and MLB contracts significantly outperformed any non-sports markets. The main reason why Kalshi and others are able to expand so quickly has to do with regulatory frameworks.
Under traditional sports betting laws, operators must receive approval from state regulators in order to offer new bet types in a jurisdiction. But federally regulated commodities exchanges can self-certify contracts and begin offering them immediately. The CFTC can then come behind and request they be removed, or take no action. This framework is among the biggest contentions from detractors, although Kalshi and others have claimed to have consulted with the CFTC during the process.
“The way new contracts come to market offers a stark contrast: exchanges can launch new, more exotic sports prediction markets via self-certification, which puts the burden of initiating any post-launch review on the CFTC and allows most contract markets to simply proceed unchecked,” Roth wrote. “But for legal sports betting operators, affirmative regulatory approval from the applicable state gaming regulator is required before a new betting market can be launch in the first place.”
Roth went on to assert that this process “suggests to us that player proposition markets (i.e., markets focused on a player’s single-game performance) or other potential markets (e.g., markets focused on officiating decisions, league rules, or player injuries) are not far behind”.
Prop bets especially touchy for NBA
For the NBA, player prop bets on prediction markets would be especially concerning.
Last April, the league banned former Toronto Raptors forward Jontay Porter for life for intentionally leaving games early to cash “under” prop bets on his performance. As a two-way player on the fringes of the league, Porter was especially vulnerable to such influence as a means to repay gambling debts. He ultimately pleaded guilty to conspiracy to commit wire fraud last July.
The scandal was among the biggest of 2024 and has since resulted in several additional indictments. Another player, point guard Terry Rozier, is also reportedly under investigation for his connection to suspicious betting activity.
In March 2023, when Rozier played for the Charlotte Hornets, he exited a game against the New Orleans Pelicans early and underperformed his betting totals after suspicious betting activity was flagged before the game. Citing foot soreness, he left the game and did not return that season. That investigation is ongoing, and is said to be connected to Porter’s.
Who’s watching the store?
In the cases of Porter and Rozier, the scandals were first unearthed by betting integrity monitors. These third parties monitor betting activity and alert leagues and state regulators of any irregularities. Their work has so far been pivotal to identifying nearly all betting scandals discovered post-PASPA.
This also is among the NBA’s chief concerns as it relates to prediction markets. The NBA did not reference Porter’s activity in its letter to the CFTC.
“Likewise, as sports betting prediction markets exist today, we are not aware of any requirement that either exchanges or brokers report potentially suspicious trades or trading patterns to an affected league or cooperate with any league-run investigations into such suspicious activity; nor are we aware of any mechanism that would require ongoing information sharing between exchanges and affected leagues,” Roth wrote.
Given that leagues “have little ability to monitor and understand integrity risks”, Roth asserted that “the risks arising from this limited visibility will grow”.
Prior to Porter’s suspension, Silver described Porter’s transgressions as “the cardinal sin”, in violating league integrity rules. The NBA also has a long-term partnership with global data provider Sportradar, which has the capability to monitor anomalous betting patterns in near real-time.
Las Vegas-based IC360 is of the industry’s leaders in integrity monitoring, and has flagged multiple pro and collegiate scandals. However, the industry was somewhat jolted by the 24 March announcement that IC360 is now partnered with Kalshi. The sudden departure of founder Matt Holt, which was not disclosed for several weeks, has also raised eyebrows among industry circles.
“IC360 strongly believes that integrity in sport can be achieved through innovative technology-driven solutions and collaborative stakeholder engagement. Our partnership with Kalshi is a terrific embodiment of these principles,” Scott Sadin, co-CEO of IC360, said in a release announcing the partnership.