Polymarket, a “prediction market” that garnered recognition for allowing users to wager on the outcome of the US presidential election and subsequently agreed to stop servicing US citizens are part of a 2022 settlement with the CFTC, intends to reestablish itself in the US market through the acquisition of a CFTC-licensed operation.
The move comes while KalshiEx, LLC (“Kalshi”), a fellow prediction market platform that offers what it characterizes as “contracts” on the outcome of sports and other non-commodity related events, remains embroiled in litigation across the country, squaring off against state gaming regulators and tribal entities seeking to maintain control of regulated sports wagering amidst a philosophical shift at the federal level as both the CFTC and federal prosecutors recently dropped investigations into whether Kalshi opeates as an unlicensed illegal gambling platform.
The rise of prediction markets and the ongoing litigation could result in a major shift in how, and whether, gambling is regulated across the country. Gambling is generally regulated (or prohibited) at the state level, with federal oversight limited to instances where Congress has acted directly on a specific issue, such as wagering on horse races across state lines or certain aspects of conducting a lottery. Absent these federal interventions, states and federally recognized tribes maintain control of gambling within their respective borders. Kalshi”s position relies on an interpretation of the Commodity Exchange Act that permits the act to preempt state regulation of what Kalsih refers to as “sporting event contracts” in an environment where the CFTC and federal prosecutors backed away from classifying these contracts as gambling. The state and tribal entities, however, claim these contracts are simply illegal gambling wagers taking place within their jurisdictions and that absent express federal preemption, state law and tribal compacts provide the regulatory framework for these activities.
While the litigation continues to play out, Polymarket and other similar entities will continue to take advantage of regulatory uncertainty to create revenue streams, while licensed operators remain bound by state laws yet are forced to compete with what they characterize as another gray-market competitor. Until this issue is definitively settled in court, questions will remain as to who really regulates wagering across the country, and operators will need to be nimble and well advised on potential benefits and hazards as they consider whether to embrace the current tide or operate under the regulatory framework that has guided them for decades.
The deal gives Polymarket ownership of a CFTC-licensed operation, and represents a significant step toward re-establishing its platform in the US under a regulated framework.