Overview of the CFTC and Events Contracts
The CFTC is the primary federal regulatory body governing the trading of commodity futures and options markets in the United States. The CFTC oversees event contracts, which pay a contract holder if a particular event occurs by a certain date. 1 These contracts are typically used in prediction markets, financial markets, and hedging strategies. Their traditional purpose is to aggregate information and predict the likelihood of specific events for decision-making, planning, or financial tools, usually tied to events with clear, defined economic-related outcomes such as corporate earnings or quantifiable damage from natural disasters. 2 However, companies offering event contracts are expanding the class of tradable instruments to include sporting events. Platforms listing contracts that closely resemble wagers risk running afoul of federal statutes, including the Indian Gaming Regulatory Act (“IGRA”) and the Wire Act. Recent CFTC actions underscore the State and Tribal regulator’s interest in these concerns: the CFTC has recently initiated a formal review of sports event contracts proposed by the North American Derivatives Exchange, questioning their compliance with the Commodity Exchange Act (“CEA”). Meanwhile, the CFTC has taken limited steps to engage State and Tribal regulators to address potential jurisdictional overreach through calls and round tables, though some such meetings have been cancelled without reason. In looking to statutory and regulatory definitions of “wagering” 3 and “event contracts,” 4 it becomes clear that the existence of sports-based event contracts essentially creates an offer of unregulated and unlicensed Class III gaming. 5 Not only do these contracts pose a threat to Tribal sovereignty, but they also bypass the rules and regulations adhered to by State and Tribal governmental entities, including safeguards against problem-gambling, cheating, money-laundering, and underage gaming. Availability of sports-based event contracts on public platforms is not geographically limited at this time. This is a blatant violation of State and Tribal law, not to mention bargained for rights of exclusivity under tribal-state gaming compacts. Sale of sports-based events contracts not only infringes upon a burgeoning revenue stream for State and Tribal governments, it undermines the sovereign rights of tribal governments and states to negotiate meaningful and mutually beneficial gaming compacts. 1 Contracts & Products, Commodity Futures Trading Commission, https://www.cftc.gov/IndustryOversight/ContractsProducts/index.htm#:~:text=An%20event%20contract%2C%20als o%20known,damages%20caused%20by%20a%20hurricane. 2 Id . 3 Wagering may be defined as the “staking or risking . . . something of value upon the outcome of . . . a sporting event . . . upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome.” 31 U.S.C. § 5362(1)(A). 4 Event Contracts may be defined as “derivative contract[s] whose payoff is based on a specified event [or] occurrence.” Contracts & Products, Commodity Futures Trading Commission, https://www.cftc.gov/IndustryOversight/ContractsProducts/index.htm#:~:text=An%20event%20contract%2C%20als o%20known,damages%20caused%20by%20a%20hurricane. 5 25 C.F.R. § 502.4 (c)
2
Made with FlippingBook - Online catalogs