Senator Moran Page 2 of 3
CEA self-certified designated contract makers such as Kalshi LLC, Crypto.com, and Robinhood, are using event contracts to cloak their unlawful, unregulated gambling activity as federally- regulated market transactions. Though event contracts are offered for a multitude of different types of events, the CEA did not legalize gambling at the federal level, nor where state and tribal gambling laws still apply. In fact, in the CEA, Congress identified certain contracts, including those that involve “gaming” or “violations of state law” as contrary to the public interest, and gave the CFTC the responsibility to prohibit such contracts. The CFTC for most of its existence carried out that responsibility and exercised its authority to bar these contracts, but since February of this year it has failed to do so. As a result, purported event contracts for sports and other events continue to be offered in ALL 50 States contrary to State gambling laws and regulations. These “event contracts” authorized by the CFTC violate the IGRA and Tribal-State compacts. Under the IGRA, sports betting can only be conducted on Indian lands pursuant to a Class III gaming compact. 25 U.S.C. § 2710(d)(1). However, CFTC authorized “event contracts” are not restricted to avoid Indian lands, and thus enable sports betting on Indian lands in violation of the statute. Furthermore, CFTC event contracts violate retail and online sports betting exclusivity terms in compacts that were negotiated between tribes and several state governments. As Senator Lincoln explained on the Senate floor, Congress enacted the “Special Rule” codified under the CEA to “restrict event contract[s] around sporting events,” because “these types of contracts would not serve any real commercial purpose… rather, they would be used solely for gambling.” 156 Cong. Rec. S5906-7 (2010). Thus, the CFTC in 2012 promulgated Regulation 40.11, which prohibits listing or trading event contracts involving “gaming.” In this case, “event contracts related to… sporting events… can easily be construed as gaming; they can even be construed as games played for stakes.” KalshiEX LLC v. CFTC , No. 23-3257, 2024 WL 4164694 at *12 (D.D.C. Sept. 12, 2024). Therefore, Regulation 40.11 prohibits sports event contracts from being listed or traded because they involve gaming. Furthermore, Regulation 40.11 prohibits events contracts involving “activity that is unlawful under any State or Federal law.” These new CFTC authorized sports event contracts violate the laws of approximately 20 states that prohibit online sports betting and nearly a dozen states that prohibit any form of sports betting. As such, sports event contracts infringe upon the well-established police power of states to regulate gambling within their borders . Ah Sin v. Wittman , 198 U.S. 500, 505–06 (1905). CFTC authorized bets on sports also violate the federal Wire Act, which prohibits anyone from “knowingly us[ing] a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers… on any sporting event or contest.” 18 U.S.C. § 1084. The U.S. Courts of Appeals and the DOJ have consistently held the Wire Act to prohibit interstate online sports betting. N.H. Lottery Commission v. Rosen , 986 F.3d 38, 61-62 (1 st Cir. 2021). Sports event contracts may also conflict with other federal statutes including the Wagering Paraphernalia Act , 18 U.S.C. § 1953 and the Federal Wagering Tax Act , 26 U.S.C. §§ 4401- 4413. In sum, sports event contracts are prohibited because they violate state and federal laws.
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