The futures market is often referred to as Wall Street’s casino. Now, in a twist, there’s a proposal to let casinos start trading futures.
The marriage of the gambling industry and high finance is being pushed by a cryptocurrency exchange and a Washington lawyer. Hoping to grab a piece of the billions of dollars flowing into the US sports betting industry, they’ve designed futures contracts based on National Football League games and are petitioning regulators to bless them.
That could be challenging: Congress banned financial instruments involving gaming in 2010. But the promoters argue that the futures, tied to the outcome of a football game, have nothing to do with gambling. Instead, they’re marketing the contracts as risk management tools for legal sportsbooks, akin to any other financial derivative a business might use to offset potential losses or protect against price swings. They’re essentially asking regulators to think of casino operators as farmers, but instead of using futures as insurance against a bad crop they might be trying to hedge a Tampa Bay Buccaneers win.
Trading in the football futures would be limited to licensed sportsbooks, vendors, and companies that agree to help set prices and take the other side of trades as market makers. Individuals and hedge funds that may just want to speculate on the contracts would be barred from the market.
“This is not a substitute for gaming,” says Thomas Chippas, the chief executive officer of ErisX, the exchange that wants to list the contracts.
“There is underlying economic risk that is being hedged.”
ErisX formally asked the Commodity Futures Trading Commission in mid-December to approve the futures, setting off a 90-day waiting period so that the agency could seek comments from the public.
The exchange and its partner, attorney Jeff Ifrah, have spent several months meeting with the agency’s commissioners and making their case with help from a well-connected CFTC lobbying firm, Delta Strategy Group.
If the CFTC assents to their proposal, they would like to quickly offer futures for professional basketball and baseball as well.
Status of sports betting
The CFTC is treading carefully. It’s asked interested parties to weigh in on a series of questions, including whether the futures “are contrary to the public interest”; whether they could be used to influence the outcome of a sporting event; and if the products would fall under the ban on gaming contracts.
If the agency signs off, some critics say the regulator, which was established mainly to police agricultural commodities and protect farmers, would be entering into territory it knows little about.
It could also in essence be putting a government stamp of approval on the gambling industry. Even if individuals are never allowed to trade such futures, giving gaming companies the ability to transfer some of their risk would allow casinos to accept more — and larger — wagers.
“The only winner under this type of proposal are the casinos themselves,” says Les Bernal, national director of the Washington advocacy group Stop Predatory Gambling.
“It’s going to lead to citizens losing billions of dollars more money than they already are losing.”
The CFTC’s “approval is highly unlikely,” says Patrick McCarty, who runs his own government affairs firm and as a Senate Agriculture Committee aide helped draft the derivatives provisions in the 2010 law that barred gaming contracts. He notes that the CFTC should be wary of setting a precedent that down the road could put it in the position of doing an end run around gambling regulation, which is the responsibility of the states.
“It’s like opening a door that the commission doesn’t want to go through.”
Another potential hurdle is the sports leagues themselves. In comments to the CFTC, both the NFL and the National Basketball Association were lukewarm on the prospect, saying the agency should take its time studying the issue.
“We want to work with the sports leagues to make sure their concerns are addressed,” Ifrah says.
The CFTC’s decision is likely to be closely watched not only in the gaming world but also on Wall Street, where gambling is a favourite pastime of traders. Gaming is seen as a big business opportunity as well. — Betting on individual sporting events, which was legalised by the Supreme Court in 2018, now accounts for an estimated US$1,4 billion in annual revenue in the US. — Bloomberg.