Are Prediction Markets Gambling? The CFTC Nominee Won’t Say.

Michael Selig, the Trump administration’s nominee to chair the Commodity Futures Trading Commission, appeared before the Senate’s agriculture committee on Wednesday. (Tierney L. Cross/Bloomberg)

Michael Selig, the nominee to lead the Commodity Futures Trading Commission, was pressed at his confirmation hearing Wednesday to weigh in on the debate around prediction markets.

Asked by U.S. senators whether prediction market event contracts were a form of gambling, Selig declined to give a direct answer. “On this issue, I would look to the courts,” he said during the hearing.

Should he be confirmed, Selig would take the helm of a regulatory agency that has come under increased scrutiny as prediction market firms like Kalshi offer financial instruments that closely replicate sports betting. They fall under the CFTC’s regulation, unlike traditional sports betting, which is overseen by states.

Amid the surge in trading volume for sport event contracts, the CFTC hasn’t yet to say whether those contracts constitute “gaming,” deferring to lawsuits that are working their way through the court system in various states.

Selig continued that deference to courts.

The lawsuits seeking to stop prediction markets could turn on the definition of “gaming.”

The 1936 Commodities Exchange Act gave the CFTC the power to pull certain event contracts from prediction markets if the commission deems those contracts to be “contrary to the public interest” and involve “gaming.”

Event contracts from companies like Kalshi have features that replicate parlay bets. A narrow interpretation of what constitutes “gaming” would keep those contracts on the market.

“Many lengthy legal opinions have been written on one word in a statute,” Selig said during his hearing Wednesday. “I would really want the benefit of understanding what the judges think about the issue. This could be one that works its way all the way to the top, so I’ll look to the courts on this issue.”

Multiple Democrats on the Senate Committee on Agriculture, Nutrition, and Forestry pushed Selig to explain his own stance.

“I understand that you will defer to the courts,” Sen. Adam Schiff (D, Calif.) told Selig. “But what is your view on whether these are gaming in violation [of the law] or whether these are some kind of different contractual obligation that has some kind of intrinsic economic merit?”

“As you know, as a good lawyer,” Selig replied, “the answer is always: ‘It depends.’ And that’s why these are questions for the courts.”

Sen. Schiff brought up Thursday’s NFL game between the Buffalo Bills and Houston Texans as an example. If someone bets on the game through a prediction market platform, is that gaming?

“It would be irresponsible for me to prejudge that issue,” Selig said, “I will look to the courts.”

Selig currently serves as the chief counsel of the SEC’s Crypto Task Force. He is President Donald Trump’s second nominee to lead the CFTC this year, after the White House pulled its previous nominee, Brian Quintenz, a former CFTC commissioner, following his hearing in June. Crypto industry stalwarts Cameron and Tyler Winklevoss, the brothers behind the cryptocurrency exchange Gemini Space Station, had opposed Quintenz’s nomination, according to the Wall Street Journal.

Prediction markets got more attention from senators during this hearing than the last. The platforms for trading event contracts have exploded in popularity since Quintenz’s hearing. The U.S. online sports betting duopoly of DraftKings and Flutter Entertainment’s FanDuel have both announced plans to offer contracts based on sporting events in states that haven’t legalized sports betting.

That Selig’s nomination hearing took place before the Senate Committee on Agriculture, Nutrition, and Forestry, and the questions he faced touched on digital commodities and the blockchain signals just how far the CFTC’s regulatory scope has expanded beyond crop futures.

Senators whose work on the committee this year has largely centered on farm subsidies and wildfire mitigation contended with the regulatory complexities of cryptocurrency and financial instruments that effectively enable nationwide sports betting.

Event contracts are financial products built around yes/no questions such as “will the Yankees win?” Since they are regulated by the CFTC at the federal level, event contracts are available on prediction markets nationwide and circumvent the state taxes and regulations that traditional sports betting falls under.

As outside counsel for venture-capital firm Paradigm Operations, Selig advised on a letter Paradigm sent to the CFTC that argued for the regulator to allow prediction market firm Kalshi to offer event contracts based on election outcomes. “The CFTC’s characterization of political contests, awards contests, and sporting events as forms of ‘gaming’ is arbitrary and capricious,” the letter said.

“The CFTC should view the act of banning a contract from trading on a regulated exchange as an extreme action that warrants considerable review,” the Paradigm letter continued.

At his hearing, Selig didn’t take the opportunity to make his own opinion clear. “I think it would be irresponsible for me to prejudge that issue,” he said.

“I’m a firm believer that what you write for your clients doesn’t necessarily reflect your personal views,” says Andrew Kim, a partner at the law firm Goodwin focused on gambling and prediction markets. Still, Kim says, “I tend to think that someone coming from the crypto policy sphere is generally going to be very supportive of prediction markets.”

“The question is whether he continues with a more laissez-faire approach in terms of prediction market innovation or whether there is a more comprehensive framework in the back of his mind,” Kim says.

Trading volume on prediction markets has soared and upended the gambling industry under the laissez-faire status quo.

“The more the CFTC gives permanence to prediction markets and event contracts by creating a comprehensive framework, the better off the event contract industry is and the harder it is for the next administration to undo,” Kim told Barron’s.

As he did in the previous nomination hearing, Sen. Cory Booker (D, N.J.) called for an independent CFTC in the face of the Trump family’s growing business interests in prediction markets.

Donald Trump, Jr., is an advisor to two leading prediction market firms, Kalshi and Polymarket, and his hedge fund has invested in the latter; President Donald Trump’s social-media platform, Truth Social, recently announced plans to offer event contracts of its own.

Asked if he would provide any special treatment for the president’s prediction markets, Selig said: “I’ll always uphold the law and stick to the law.”

Write to Nick Devor at nicholas.devor@barrons.com