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The Michigan Gaming Control Board (MGCB) has raised concerns to the Commodity Futures Trading Commission (CFTC) about sports contracts being traded on predictions markets like Kalshi and Robinhood. However, the regulator has not yet ordered the platforms to cease operations in the state, unlike officials in other states, including Nevada and New Jersey.
Kalshi is federally regulated under the CFTC, and received approval to start offering sports contracts during the Super Bowl. PlayMichigan reported that the MGCB started an investigation into predictions markets on April 4.
It appears the MGCB has ended the investigation, although that was not entirely clear in the press release.
Although some trading platforms complied with orders from other regulators, Kalshi is fighting Nevada and New Jersey in court. Preliminary injunctions in both states suggest the case might be going the company’s way. That may be part of the reason that the MGCB—ordinarily aggressive in pursuing anything it considers an illegal gambling service—has turned to the CFTC with its concerns rather than taking direct action.
What the MGCB told the CFTC
MGCB Executive Director, Henry Williams, has formally submitted comments to the CGTC Acting Chairperson, Caroline Pham, regarding the fact that sports contracts are the equivalent to online sports betting, which are subject to the Lawful Sports Betting Act (LSBA).
Operators under the LSBA must comply with certain rules to protect Michigan players, which Williams addressed in a press release. He said:
The offering of sporting event contracts by CFTC-regulated entities, without adherence to Michigan’s licensing requirements and in a manner that may not meet prescribed consumer protections, exposes Michigan residents to unnecessary risk and undermines public trust.
We are particularly concerned that such contracts are being promoted as investment opportunities, a message that directly contradicts Michigan’s responsible gaming principles.
The MGCB’s letter to the CFTC noted the following regulatory standards licensed sports betting operators must adhere to:
- Licensing and Oversight: Michigan law requires that all sports betting operators, platform providers, and certain individuals be licensed, undergo thorough background checks, and demonstrate suitability to protect consumers.
- Responsible Gaming: Michigan mandates a comprehensive suite of responsible gaming tools and maintains a statewide self-exclusion program.
- Consumer Protection: Licensed operators must secure patron funds, process withdrawals promptly, and provide complaint resolution options, among other safeguards.
- Event Integrity: Events and wager types must be approved by the MGCB and be subject to integrity monitoring and fraud prevention protocols.
It appears as if CFTC operators, such as Kalshi, lack those guidelines while operating in Michigan.
Predictions markets take away tax revenue
The MGCB addressed the fact that predictions markets, which are not licensed in the Great Lakes State, could reduce state, local, and tribal government revenues. The state generated $20 million in sports betting taxes, which benefitted public services and responsible gaming programs.
Williams added in a press release:
The potential for financial harm to both consumers and government programs is real. Any erosion of the legal, regulated sports betting market undermines the very safeguards we have in place to protect Michiganders.
The MGCB isn’t afraid to take action against unregulated gambling, which it did earlier this week against offshore sportsbooks. However, it did not do so with predictions markets.
Kalshi had been issued cease-and-desist letters in Nevada and New Jersey, but won preliminary injunctions in both states. Judges ruled that the operator has a good chance of winning the legal battle, because it is federally regulated.
The MGCB chose not to take action, but laid out potential risks for Michigan residents and the state to the CFTC.
