USA – NEW YORK Trends and Developments Contributed by: Mitchell Schuster and Richard T. Lobas, Meister Seelig & Schuster
Meister Seelig & Schuster 125 Park Avenue, 7th Floor
New York NY 10017 USA
Tel: +1 212 655 3500 Fax: +1 212 655 3535 Email: info@msf-law.com Web: www.mss-pllc.com
Setting the stage – prediction markets and event contracts A prediction market is a marketplace where people can “trade” on future events, including politics, sports, business outcomes and the like. Generally, these mar - ketplaces allow people to buy and sell “contracts” based on predictions of future event outcomes. Kalshi, for example, offers several kinds of event contracts related to technology, health, popular culture, politics, economics and sports. If the user accurately predicts the outcome of an event, the contract pays. Central to the prediction market operators’ position that such exchanges are fundamentally distinct from a sports - book, and therefore should be subject to different reg - ulatory schemes, is the argument that users enter into contracts with other users on their platforms, rather than with a “house” – a position being challenged in New York courts. The regulatory issue – are prediction markets just sportsbooks in disguise? New York Attorney General positio n In 2018, the United States Supreme Court decided Murphy v Nat’l Collegiate Athletic Ass’n , 584 U.S. 453 (2018), opening the door to legal gambling on sports. The Court struck down the Professional and Amateur Sports Protection Act of 1992, 28 U.S.C. §3701 et seq, which had effectively constituted a federal ban on all commercial sports betting. Following that decision, regulation of sports wagering was left up to the states. Numerous states, including New York, legalised mobile sports wagering in 2021. New York likewise has a body of regulation surrounding sports wagering through the New York Racing, Pari-Mutuel Wagering
Prediction Markets Introduction
Prediction markets, and clashes over whether they mislead consumers and are subject to state or federal regulation, have recently dominated New York sports law headlines. Courts in New York are on the front lines, playing home to high-profile proposed class actions, disputes seeking to enjoin state enforcement of gambling laws and criminal prosecutions alleging expansive bet fixing schemes. New York Attorney General Letitia James has made the office’s position clear in a recent industry and con - sumer alert, warning that the Attorney General has the authority to, and will, use New York gambling laws to regulate and prosecute what it characterises as unli - censed sports betting through prediction markets. Of course, prediction market operators have taken the opposite view – that sports-based event contracts offered through their marketplaces are derivative con - tracts exclusively subject to federal regulation under the Commodity Exchange Act through the Commodity Futures Trading Commission (CFTC). This fight is playing out as part of the larger struggle to protect the integrity of sporting contests in the face of the relatively nascent legality, and exploding popular - ity, of sports betting. However, the future of sports- based contracts on prediction markets shakes out, regulators, law enforcement and market participants in New York will no doubt continue to grapple with balancing the demand for this important fan experi - ence against protecting consumers and the integrity of the game.
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