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    Gaming & Gambling Update – January 2025


    6 minute read | January.30.2025

    Acting Chair Named for CFTC Opens Door to Event Contracts While Departing Chair Cautions Against Expansion

    Commissioner Caroline D. Pham has been named as Acting Chair of The Commodity Futures Trading Commission, effective January 20, 2025 and taken quick action to break from her predecessor.

    Acting Chair Pham, nominated to be a CFTC Commissioner on January 12, 2022 and unanimously confirmed by the U.S. Senate on March 28, 2022, for a term expiring on April 13, 2027, succeeds Rostin Behnam, who served as Chair since January 4, 2022, and will remain a Commissioner until his departure on February 7, 2025.

    Commissioner Behnam has expressed concerns about the increasing overlap between financial markets and gambling. Behnam emphasized the importance of maintaining the primary functions of exchanges—hedging and price discovery—while distinguishing them from gambling. By contrast, Acting Chair Pham has positively referred to the “innovative contracts and exchanges that have appeared in recent years”. This ongoing debate underscores the evolving landscape of event contracts and their intersection with gaming.

    Behnam urged his successor to clarify the boundaries between permissible and impermissible contracts, particularly “prediction markets” related to elections and gaming. The controversy surrounding such markets has increased, highlighted by the CFTC's previous actions against attempts to offer election markets, an action in which the new acting Chair authored a dissenting opinion. The CFTC deemed these contracts as related to gaming and contrary to the public interest, but a federal court ruled in a challenge brought by Kalshi that the CFTC overstepped its authority.  That case remains on appeal, and a related rulemaking pursuant to which the CFTC could clarify its position on these prediction markets also remains pending. 

    At the same time, the CFTC also initiated a 90-day review of sports event contracts offered by Nadex (Crypto.com), requesting that Nadex cease offering those contracts in the interim. Nadex declined to agree to that request and continues to offer sports event contracts. Kalshi, which took on Donald Trump, Jr. as an advisor, also has launched event contracts for the Super Bowl. On January 27th, Acting Chair Pham called for “…a series of public roundtables on evolving trends and innovation in market structure, including…prediction markets…” over an undefined period and would look to involve industry leaders, market participants, other market structure experts, and public interest groups as participants. This is viewed as a possible precursor to expanding allowed markets to include sports, elections, and other current events.

    In Congress, Representatives Andrea Salinas (D-OR) and Jamie Raskin (D-MD) have introduced the Ban Gambling on Elections Act, which seeks to amend the Commodity Exchange Act to prohibit betting on U.S. elections. If enacted, the bill would short-circuit the litigation and regulatory debate by outright prohibiting election markets.  It does not address sports event or other forms of prediction markets.

    Election Betting Prohibition an Early Legislative Priority for State Lawmakers

    State lawmakers in Massachusetts and Indiana have introduced legislation to ban betting on election outcomes, reflecting a growing federal and state concern over the intersection of gambling and politics. In Massachusetts, Senator Jacob R. Oliveira has introduced a bill to prohibit gambling on political outcomes, aiming for it to be enacted as an emergency law covering elections, appointments, and legislative actions within the commonwealth. While Massachusetts does not currently prohibit election betting, it is assumed the Massachusetts Gaming Commission would not approve such markets for any of its licensees.

    Similarly, Indiana's Representative J.D. Prescott has proposed a bill to prevent licensed sports betting operators from accepting bets on election outcomes, with fines and potential license revocation for non-compliance. The Indiana Gaming Commission does not specifically prohibit election markets but is expected to disapprove of any proposal to facilitate such wagering.

    Notably, federal markets regulated by the CFTC would not be prohibited by these state initiatives.  

    Legal Sports Betting in High Demand Among Neighboring Unregulated States 

    A recent report by GeoComply highlights the growing interest in legal sports betting among residents in states where it is currently unregulated. The company analyzed data from seven states without legal online sports betting—Alabama, Georgia, Minnesota, Mississippi, Nebraska, South Carolina, and Texas—showing significant increases in attempts to access sportsbooks in neighboring legal states.

    Key findings include:

    • South Carolina: Experienced a 436.67% increase in active sports betting accounts, influenced by North Carolina's launch of mobile sports betting in 2024. GeoComply tracked over 7.7 million checks from 365,808 accounts.
    • Alabama: Saw a nearly 160% increase in accounts, with 2.9 million geolocation checks. 
    • Georgia: Recorded a 101% increase in accounts, with 3.7 million checks from 297,239 accounts. 
    • Texas: Noted a 55% growth in accounts, with 4.5 million checks from 333,458 accounts. 
    • Mississippi: With in-person sportsbooks, the state recorded nearly 10 million checks from 212,363 users, a 77% increase. 
    • Nebraska: Experienced a 62% increase in accounts, with nearly 3.4 million checks. 

    GeoComply's data underscores the significant consumer interest and cross-border activity and suggests there is a substantial opportunity to tap into this demand.

    DFS Operator Facing Illegal Gambling Lawsuit

    A lawsuit has been filed against Underdog Sports LLC, accusing the fantasy betting website of operating an illegal gambling market in Georgia, where gambling is prohibited. The plaintiff claims that Underdog's "pick 'em" games, which involve betting on team or player performances, function as a betting market rather than a fantasy competition and are illegal under Georgia law. The plaintiff, while not a user of the site, cites a Georgia resident who lost money on the games. If successful, the lawsuit could result in the return of profits to users and public educational funds in Georgia.

    The lawsuit, initially filed in Fulton County court, alleges that Underdog Sports' platform does not offer true fantasy games, as users bet against the company's offered line rather than competing against each other. Similar accusations have been made against the company in other states, including Wyoming, Florida, Arkansas, and Maine, where regulators determined the format violated state laws, though Underdog Sports altered its offerings in those states to enable peer to peer play and continue operations.

    Underdog Sports has moved the case to federal court, citing diversity jurisdiction. The case is now in the U.S. District Court for the Northern District of Georgia.

    Belgium Loot-Box Ruling an Adverse Development for Digital Platforms

    A Belgian court has ruled that paid loot boxes are illegal gambling, impacting the liability of digital platforms for hosting games with such features. A player of "Top War: Battle Game" is suing for damages, targeting the platform hosting the game rather than the developer. The court's decision aligns with a 2018 regulatory opinion, but questions remain about the platform's responsibility for hosting the game. The case has been referred to the Court of Justice of the European Union for further guidance. The ruling's impact outside Belgium is uncertain, as laws vary across countries. Companies are advised to ensure compliance with both consumer and gambling laws, especially avoiding paid loot boxes in Belgium.