Super Bowl Bets on Crypto.com Poised for CFTC Review of Legality
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Super Bowl Bets on Crypto.com Poised for CFTC Review of Legality
Lydia Beyoud and Ira Boudway
5 min read
(Bloomberg) -- Federal regulators are deciding whether to probe the legality of trading in Crypto.com futures contracts that let investors bet on who will win major football games including the Super Bowl.
The five-member Commodity Futures Trading Commission is in the process of voting on a measure to subject the contracts to a 90-day review, according to people familiar with the matter, who weren’t authorized to speak publicly. The agency lacks the power to halt trading immediately, and the review would extend until well past the Super Bowl’s Feb. 9 game day, but the commission could ban this type of contract after its examination is completed.
At issue is whether the contracts, which are listed on Crypto.com’s Chicago-based derivatives exchange, might violate laws on gaming. The firm followed the legal procedures for alerting the CFTC on Dec. 19 of its plans to start trading two days before Christmas. But the agency didn’t have time to review the contracts when they were submitted just days before the holiday as well as a potential government shutdown.
The deliberations highlight the challenges faced by the CFTC as firms in the rapidly growing business of events contracts test the legal boundaries. Crypto.com debuted its football contracts just weeks after another exchange, Kalshi Inc., started and then paused trading on whether the alleged assassin of UnitedHealthcare Chief Executive Officer Brian Thompson would plead guilty to murder. Kalshi told its customers it took action after regulators reached out.
Crypto.com hasn’t been notified of the pending action, a company spokesperson said. “It is disappointing that the current and imminently departing CFTC leadership would consider this action while not allowing the incoming CFTC leadership to determine how free markets operate under its administration,” the spokesperson said. A CFTC representative declined to comment.
Crypto.com’s contracts, which are tied to the outcome of college and National Football League contests, don’t mention the games by their formal names on the firm’s website or social media accounts. But they are displayed on its app, where traders 18 or older were invited to wager on the chances of the Kansas City Chiefs or Baltimore Ravens winning the AFC championship or the Super Bowl.
The CFTC nearly rejected similar contracts in early 2021 submitted by ErisX, but the applicant pulled its proposal before the agency could vote on a ban.
New Entrant
The sudden entry of Crypto.com increases competition for firms like FanDuel and DraftKings, as well as sports books across the country. Unlike those firms, however, Crypto.com’s trading is available nationwide, rather than on a state-by-state basis. And while sports books set the odds and hold the risk of paying out winners, markets like Crypto.com arrange two sides of a trade and keep a small cut.
Mobile sports betting is allowed in 30 states and the District of Columbia. Polymarket, an unregulated exchange that says it excludes US users, also allows trading on the Super Bowl and many other sports.
Legally, the CFTC staff gets a full business day to potentially review a “self-certified” new contract for compliance before it can trade on an exchange the next business day.
Two of Crypto.com’s 10 contracts filed on Dec. 19 said they were related to sports, using the terms “title event” and “hometown celebration” to describe them. The latter could serve to “express a market view related to the broad and varying economic and commercial impacts of a city hosting a celebration.”
In theory, the statute gave the CFTC staff the next business day to review the filings for compliance before the contracts went live for trading the following Monday.
The company didn’t want to launch the new product in the midst of the holidays, but decided to move forward due to the uncertainty of a long shutdown that might cause the firm to miss out on trading before the Super Bowl, a Crypto.com spokesperson previously told Bloomberg News.
Contracts are listed at $100, with individuals limited to 2,500 contracts with $250,000 of notional value. Market makers can hold 250,000 contracts.
The CFTC, which regulates swaps and futures, has long looked askance at contracts tied to sports, war, assassination and activities prohibited by federal and state law.
But a recent legal decision just weeks before the November US elections opened the door to multiple CFTC-regulated exchanges launching political predictions trades. That ruling gave Crypto.com legal clarity for event contracts generally, including those involving the Super Bowl title holder for a given year, the company spokesperson said.
“Having CFTC oversight of this brings, of course, federally regulated market integrity, manipulation controls and product availability in all 50 states,” Crypto.com’s Chief Legal Officer Nick Lundgren said in a Jan. 8 interview.
More companies are looking to introduce CFTC-regulated prediction markets.
“You’re going to see that line being blurred between what is legal, what’s illegal, what’s permitted, what’s impermissible,” CFTC Chairman Rostin Behnam said in a Jan. 7 interview. “I think that diverts very far away from the origins at the heart of what the CFTC does and what derivatives markets are meant to be.”
Behnam’s CFTC never finalized a 2024 rule that would have defined “gaming” in event contracts. The measure would have prohibited trading on the outcomes of politics, sports, war, assassination and other events deemed not in the public interest.
Under incoming President Donald Trump, the regulator could clarify the rules of the road. But the agency is expected to take a friendlier approach to these types of exchanges than the Biden administration. Behnam plans to step down as chair on Jan. 20 and leave the commission on Feb. 7. Trump hasn’t yet nominated a candidate to succeed him.
