Caroline Pham, Acting Chairperson Commodity Futures Trading Commission Page 3 of 13
to state governments -- in exchange for substantial exclusivity over sports betting in their state. Lastly, listing and trading Sports Contracts will siphon critically needed revenue that supports tribal and state governments and their citizens by providing an end-run around tribal and state regulation of sports betting. Moreover, they directly violate the Commodity Exchange Act (“CEA”), and the plain language of the CFTC’s implementing regulations because they involve gaming and violate state and federal laws. Any determination that Sports Contracts comply with the CEA would therefore run afoul of the plain text of the CEA and its implementing regulations. I. Sports Contracts Violate Public Policy. As discussed below, Sports Contracts are categorically contrary to the public interest pursuant to 7 U.S.C. § 7a-2(c)(5)(C) and 17 C.F.R. § 40.11(a)(1). In addition to these statutory and regulatory violations, Sports Contracts violate public policy for several reasons. First, Sports Contracts diminish tribal and state sovereignty. Second, Sports Contracts deteriorate the value of tribes’ bargained-for exclusivity to offer sports betting pursuant to compacts under the Indian Gaming Regulatory Act (“IGRA”). Third, Sports Contracts threaten to cut off vital revenue streams from sports betting conducted pursuant to valid gaming compacts that provide funding to tribal and state governments upon which both tribal and state citizens rely. Fourth, unlike sports betting regulated by tribes and states, Sports Contracts do not operate under robust regulations to address problems such as gambling addiction, problem-gambling, or match-fixing, and they do not provide funding for states to mitigate the negative externalities of gaming. Tribes are sovereign nations with primary jurisdiction over their lands and citizens, and as such, they maintain the power to establish laws, regulate activities, and manage resources without interference, to a certain extent, from state or federal governments. In 1987, the Supreme Court recognized Tribes’ inherent sovereign right to offer gaming on Tribal lands. California v. Cabazon Band of Mission Indians , 480 U.S. 202 (1987). In 1988, IGRA was enacted to facilitate government-to-government relationships between tribes and states with respect to gaming regulation. 25 U.S.C. § 2701 et seq . IGRA also codified tribes’ “exclusive right to regulate gaming activity on Indian lands,” id. § 2702, subject to limited exceptions. As for states, gaming regulation has been recognized at the heart of the police powers guaranteed by the Tenth Amendment of the United States Constitution. See, e.g., WV Ass’n of Club Owners & Fraternal Servs., Inc. v. Musgrave , 553 F.3d 292, 302 (4th Cir. 2009). An essential component of tribal and state sovereignty is the ability to enact laws for the benefit and protection of their citizens. This includes gaming laws. Allowing Sports Contracts to be traded on a national exchange would create a federal loophole to tribal and state sports betting regulations, effectively preempting a whole swath of laws enacted by sovereign governments seeking to protect the health, welfare, and safety of their citizens. This would impermissibly infringe on tribal sovereignty and run afoul of federalism principles enshrined in the Constitution.
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