U.S. Digital Gaming: CFTC Proposes Rules on Prediction Markets

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U.S. Digital Gaming: CFTC Proposes Rules on Prediction Markets

Barclays | U.S. Digital Gaming

penalty flags or micro bets (next play is a run/pass, etc.). This framework generally falls in-line

with expectations, given the market by no means expected any heavy handedness here. That

said, our interpretation is the language around player props makes it clear that this activity

isn’t against public interest per se, but left open for debate whether or not all of these

prop markets would pass the manipulation test. We expect this debate to remain front and

center throughout the public comment period, considering scandals in both the NBA and MLB

last year around individual players allegedly manipulating performances. In terms of read-

throughs to DKNG and FNDL, given that expectations for any action out of the CFTC that was

favorable toward legacy OSB were so low anyway, and given these two companies are now

getting some traction on their own PM platforms (see our note), we see a more definitive set

of CFTC rules as perhaps a minor positive near-term. That said, the ongoing regulatory battle

between the CFTC and state regulators will likely continue unabated until it reaches the

Supreme Court, in our view.

The iGaming read-through is more clearly protective of existing online casino operators.

The proposal states that event contracts involving games that depend entirely on random

chance are “highly likely” to be found contrary to the public interest because they lack

informational content. This would likely rule out prediction-market versions of core iCasino

style products such as roulette or random-number-generator outcomes, reducing the risk that

federally regulated event contracts could become a competitor to state-regulated iGaming, or

retail casinos for that matter.