CME CEO: Some sports prediction markets are gambling

On July 22, during CME Group’s second-quarter earnings call, CEO Terry Duffy warned that some sportsbook-style prediction markets amount to gambling. His remarks followed a filing the previous day in which CME self-certified new event swaps tied to professional tennis champions, men’s golf finishing positions and college football outcomes.

Duffy reiterated that the exchange will avoid certain product types. He argued small parlays and similar sportsbook-style contracts lack the features of tradable markets and are vulnerable to manipulation. “Those are not markets. Those are gambling,” he said, and suggested the issue could reach the U.S. Supreme Court.

CME President and CFO Lynne Fitzpatrick noted the exchange intentionally offers a narrower set of event contracts than some other platforms. She emphasized regulatory considerations and said the firm aims to ensure products meet requirements set by its regulator.

In filings with the Commodity Futures Trading Commission, CME asserted the newly listed event contracts are swaps under the Commodity Exchange Act and therefore fall within CFTC jurisdiction. The exchange argued the contracts do not constitute gaming because the underlying events carry “significant financial, economic, and commercial consequences.” The filings also stated the contracts are “not readily subject to manipulation,” citing league oversight, betting-market monitoring, CME’s surveillance systems, position accountability rules and enforcement mechanisms.

The comments follow a series of actions by CME addressing market integrity. Last month the exchange sued the CFTC over approval of a rival platform’s Bitcoin perpetual futures, saying those products raised market integrity concerns. Earlier this year Duffy warned at an industry conference that rapid growth in speculative trading, including prediction products, could become “a disaster waiting to happen.”

FanDuel Predicts, the joint venture between CME and FanDuel, is expanding its sports and combination-market offerings. In June the venture announced an agreement to list contracts from another regulated exchange alongside CME’s listings, allowing it to broaden the range of sports and combo markets available to customers.

CME continues to list a growing range of sports-linked event contracts, including soccer, golf, tennis and college football, while distinguishing those products from small, retail-style sportsbook bets. Duffy said regulators and courts may ultimately determine where the line between regulated event contracts and gambling should be drawn.