CME CEO Calls Some Sports Prediction Markets ‘Gambling’ as Exchange Expands Sports Contracts

CME Group CEO Terry Duffy said some sportsbook-style prediction markets amount to gambling, distinguishing between the exchange’s own sports-event contracts and certain products, such as small parlays, that he argued do not belong in regulated financial markets.

The distinction, however, is not between sports and non-sports products. CME already lists a growing range of sports-linked event contracts, including exchange-listed soccer combos. Instead, Duffy’s comments suggest the exchange is drawing the line around the types of contracts it believes belong under CFTC oversight.

Speaking during CME’s second-quarter earnings call on July 22, Duffy said CME intentionally limits the types of sports event contracts it offers. He suggested the U.S. Supreme Court could ultimately decide broader sports prediction markets.

FanDuel Predicts, the prediction market joint venture between CME Group and Flutter Entertainment’s FanDuel, continues expanding its sports offering, and Duffy’s comments came one day after CME certified additional event contract swaps covering tennis, golf and college football.

Duffy Says Some Sports Prediction Markets Are ‘Gambling’

Duffy acknowledged that he has consistently expressed concerns about sports prediction markets, reiterating his position during the earnings call.

“We’ll try to keep the sports out of it because I’ve been pretty public about this,” he said, before adding:

A lot of these prediction markets on sports are gambling, and I think that that is going to find its way to the Supreme Court, and that is not something that we want to be a part of participating in right now.”

Duffy also argued that certain sportsbook-style products are particularly vulnerable to manipulation.

A lot of these contracts are susceptible to manipulation when they list some of these small parlays and things of that nature, and those are not markets. Those are gambling.”

CME President and CFO Lynne Fitzpatrick said the exchange deliberately offers a narrower range of event contracts than some competitors because of regulatory considerations.

Our product set is much more narrow than some of what you might see on some of these other platforms, and that is intentional because we want to be very careful with what we are putting out for trade to make sure that it meets all the requirements that we see from our regulator.”

While CME describes its product lineup as narrow, the exchange has continued expanding its sports-event offerings, including soccer, golf, tennis and college football contracts.

CME Has Taken a Broader Stand on Prediction Markets

Duffy’s comments also come as CME has taken an active role in debates over the scope of CFTC-regulated event contracts.

Last month, the exchange sued the Commodity Futures Trading Commission (CFTC) over its approval of Kalshi’s Bitcoin perpetual futures contracts. CME argues that the products raised significant concerns about market integrity.

Earlier that month, speaking at the Piper Sandler Global Exchange & FinTech Conference, Duffy warned that the rapid growth of speculative trading, “including predictions and everything else,” could become “a disaster waiting to happen.”

CME Certified Additional Sports Event Contracts One Day Earlier

The comments came just one day after CME self-certified additional sports event contract swaps tied to:

• Professional tennis tournament champions
• Men’s professional golf tournament finishing positions
• College football game outcomes
• College football national championship winners

In the filing, CME stated that the contracts are swaps under the Commodity Exchange Act (CEA) and therefore fall within the CFTC’s exclusive jurisdiction. The exchange also stated that the contracts do not involve “gaming” as contemplated under Section 5c(c)(5)(C) of the CEA. That’s because the underlying events have “significant financial, economic, and commercial consequences.”

CME further certified that the contracts are “not readily subject to manipulation.” The filing cites the integrity of professional sports competitions, league oversight, betting-market monitoring and CME’s own surveillance systems, position accountability rules and enforcement mechanisms.

Taken together, the filing and Duffy’s remarks illustrate the regulatory line CME is attempting to draw: exchange-traded sports event contracts that satisfy CFTC requirements are appropriate for federally regulated derivatives markets. Meanwhile, certain sportsbook-style products, such as small parlays, fall into a different category.

FanDuel Predicts Already Expanding Beyond CME’s Own Product Set

During Flutter’s first-quarter earnings call in May, CEO Peter Jackson described prediction markets as “an attractive incremental customer acquisition opportunity.” He said Flutter intended to expand the platform’s sports coverage, improve its range of combination markets and broaden its overall product catalog.

Those plans have since advanced. In June, FanDuel Predicts announced a partnership with Crypto.com’s Nadex to expand its offering of sports, entertainment and combination event contracts. The agreement allows FanDuel Predicts to offer contracts listed on Nadex alongside those available through CME’s exchange.

The announcement also shows that FanDuel Predicts is broadening its product offering by sourcing contracts from multiple CFTC-regulated exchanges rather than relying solely on CME’s exchange.

The comments do not necessarily indicate a disagreement between the joint venture partners. They do, however, illustrate the different priorities within the business as FanDuel Predicts broadens its catalog. At the same time, CME continues to define the types of products it believes belong within federally regulated derivatives markets.

CME is participating in the category while simultaneously attempting to define the regulatory boundary between event contracts and gambling.

Featured Image: CME Group via Wikimedia Commons (license)