Major League Baseball is stepping into a new and increasingly complex arena of sports wagering: prediction markets. Last week, the league announced a memorandum of understanding with the Commodity Futures Trading Commission (CFTC) and named Polymarket as its official prediction market exchange. This move signals a significant shift in how professional sports leagues are approaching the rapidly evolving world of sports betting, particularly as these markets operate outside the traditional regulatory frameworks established in states with legalized sports wagering.
The agreement with the CFTC aims to proactively address potential risks like insider trading and market manipulation, issues that have recently plagued both traditional sports betting and, increasingly, these newer prediction platforms. MLB’s involvement comes as prediction markets, where users trade on the outcome of events, have seen explosive growth, exceeding $60 billion in trading volume last year, with sports accounting for over 80% of that activity. This partnership represents a first step toward bringing oversight to a sector that has largely flown under the radar of state regulators.
The rise of prediction markets has created a legal gray area, prompting a wave of lawsuits and regulatory challenges. Arizona’s Attorney General recently filed criminal charges against Kalshi, a prediction market operator, alleging it was operating as an unlicensed bookmaker. Reuters reported on the lawsuit, highlighting the ongoing jurisdictional battles between state and federal regulators. Similar legal challenges are unfolding in at least 20 other states, including California and Texas, where sports betting remains largely illegal.
Navigating a Murky Legal Landscape
Prediction markets differ from traditional sportsbooks in their mechanics. Instead of placing bets against a house, users trade contracts that pay out based on the outcome of an event. This structure has allowed them to flourish in states without legal sports betting, offering a substitute for those seeking to wager on games. However, this very structure is what has drawn scrutiny from regulators, who are grappling with how to classify and oversee these platforms.
The CFTC’s involvement is a key development. The agency, which regulates derivatives markets, is now working directly with MLB to share information and assess the integrity risks associated with various prediction market contracts. This collaboration will focus on identifying markets susceptible to manipulation, such as those related to individual player performance or officiating decisions. Polymarket has already pledged to restrict markets that MLB deems high-risk, including those focused on individual pitch results and umpire calls.
“We need to understand and function together with the leagues to know what can potentially be easily manipulated on the field,” CFTC Chairman Michael Selig said last week, according to a report from Sportico. “We don’t necessarily have all that information from our background as a derivatives regulator. But we’re going to get it by working together with the league and getting this right.”
MLB’s Proactive Approach
MLB Commissioner Rob Manfred echoed this sentiment, emphasizing the league’s commitment to protecting the integrity of the game. “I believe that in the period of time that it takes those legal issues to get resolved in a definitive way, it’s incumbent on us to do everything we can to protect the integrity of the sport while this activity is ongoing,” Manfred said during the signing of the MOU in Miami on March 18. He acknowledged that prediction markets are unlikely to disappear even if states ultimately win their legal battles, making proactive oversight essential.
This approach mirrors the strategy MLB employed when traditional sports betting was legalized following a 2018 Supreme Court decision. The league crafted commercial agreements with sportsbooks like FanDuel and BetMGM, incorporating integrity provisions such as the use of official data and a say in which markets are offered. The Polymarket deal largely follows this same model.
However, there are nuances. While Polymarket will have exclusive rights to use MLB and team marks on its app, a second tier of authorized operators will be able to pursue team sponsorships and advertising opportunities, provided they adhere to MLB’s integrity standards. MLB will also treat prediction markets as a separate sponsorship category from traditional sports betting, allowing its existing sportsbook partners, FanDuel and BetMGM, to continue utilizing league marks on prediction market apps.
Expanding Reach and Future Considerations
MLB isn’t alone in exploring partnerships with prediction market operators. Other leagues, including Major League Soccer, the National Hockey League, and the Ultimate Fighting Championship, have also established relationships with Polymarket and Kalshi, as detailed in a breakout box released by Sportico (reproduced below).
Exchange Rate
U.S. League-level deals with prediction market operators
Major League Baseball: Polymarket
Major League Soccer: Polymarket
National Hockey League: Kalshi and Polymarket
Ultimate Fighting Championship: Polymarket
Ari Borod, president of sports business development at Polymarket, emphasized the importance of these partnerships for legitimizing the prediction market category. “Partnering with a professional sports league is really important to lend legitimacy to the category,” Borod said, according to Sportico. “Our commitment is to build a long-term, prosperous prediction market exchange that allows customers to trade on a variety of derivatives.”
The multiyear deal between MLB and Polymarket includes a clause allowing MLB to exit the agreement if the legal or regulatory landscape surrounding prediction markets changes. Polymarket does not have a reciprocal exit clause if its customer base shrinks due to increased state legalization of sports betting.
Looking Ahead
MLB’s decision to work with the CFTC reflects a preference for federal oversight, which Manfred described as “a lot easier” than navigating the patchwork of state regulations governing sports betting. The CFTC has also initiated a 45-day public comment period to gather feedback and potentially update its rules governing prediction markets. The agency is also in talks with other sports leagues about similar collaborations.
The future of prediction markets remains uncertain, but MLB’s proactive approach, coupled with the CFTC’s increased scrutiny, suggests a growing effort to bring this emerging form of sports wagering into a more regulated environment. The next key date to watch is the end of the CFTC’s public comment period, which will likely inform the agency’s next steps in establishing a clearer regulatory framework.
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