Recent Developments
- Brazil's Burgeoning M&A Market
- Canada Senate Debates National Regulations on Sports-Betting Advertising
- Maryland Proposes to Eliminate Sports-Betting Promo Deductions
- Analysis: Does Kalshi’s Court Win Mean Wagers (Ahem, Event Contracts) on Politics Are Near?
Brazil's Burgeoning M&A Market
As a result of last year’s regulatory implementation, there has been a burgeoning M&A market in Brazil, which is poised to surpass the US due to its more streamlined nationwide regulations. Experts predict that Brazil's incoming national regulatory regime will foster competition and innovation, unlike the fragmented and costly US market. The trend of partnerships between experienced international operators and local companies is emerging, with notable examples like MGM partnering with major media company Grupo Global. This partnership model is expected to become more prevalent as Brazil's market matures. Additionally, this follows increased M&A activity in other markets, such as Italy, and the potential for new opportunities in Japan, Thailand, and the UAE. The B2B supplier sector is also seen as an attractive area for future ROW M&A growth as additional countries and provinces legalize online wagering.
Canada Senate Debates National Regulations on Sports-Betting Advertising
The Canadian Senate is deliberating Bill S-269, which aims to create a national framework for regulating sports-betting advertisements. The bill proposes restrictions on the number of commercials and bans the use of celebrities and athletes in gambling ads. While some stakeholders, like the Canadian Football League and the Canadian Association of Broadcasters, argue that a national framework is unnecessary and could create regulatory confusion, others advocate for stricter measures. Responsible gambling advocates have suggested alternatives, such as banning ads during live events or redirecting a portion of sports-betting revenue to addiction research and prevention. The debate comes amid similar discussions in the US and Australia.
Maryland Proposes to Eliminate Sports-Betting Promo Deductions
The Maryland Lottery and Gaming Control Commission has proposed a rule change that prohibits sportsbook operators from deducting promotional play from taxable sports wagering revenues. This change aims to increase gaming taxes and address the state's budget shortfalls. Previously, operators could deduct an unlimited amount of promotional play in their first year and up to 20% of annual revenue thereafter. The new regulation would eliminate these deductions entirely. This follows similar actions by other states, such as Virginia, to curb promotional play deductions.
And Now Some Analysis…
Does Kalshi’s Court Win Mean Wagers (Ahem, Event Contracts) on Politics Are Near?
Behnam Dayanim
The DC federal district court’s decision rejecting the CFTC’s attempt to prohibit Kalshi from offering event contracts involving political events will not be the last word on the matter. The DC Circuit has stayed the district court order, and the CFTC itself – likely recognizing the uncertainty of its position – already had initiated a formal rulemaking intended to accomplish the same purpose (and more, aiming to prohibit event contracts involving gambling and sports betting as contrary to the public interest).
In evaluating the Commission’s chances of success on its appeal, it’s worth understanding Judge Jia Cobb’s order:
- The Commodities Exchange Act and its implementing regulation include a “special rule” that allows the Commission to review and prohibit event contracts that it determines are contrary to the public interest if, and only if, they “involve” unlawful activity, war, terrorism, assassination or “gaming.” Notably, the “special rule” also permits the CFTC, by rule or regulation, to prohibit contracts involving activities “similar” to those categories. Kalshi sought to offer an event contract addressing which political party will control Congress after the next election. The CFTC prohibited that contract as involving unlawful activity or gaming, and as otherwise contrary to the public interest.
- Judge Cobb first rejected the Commission’s argument that “gaming” is synonymous with “gambling,” instead finding that it is limited to “the practice or activity of playing games….” The court cited the dictionary definitions of “gaming,” as well as the use of the word in the Indian Gaming Regulatory Act, which sets out three “classes” of gaming, all of which involve games – including sports betting and wagering on horse racing. Political contests, the court noted, are not games.
- The court also rejected the CFTC’s contention that “involve” can refer to the event contract itself – in other words, that the event contract “involves” gaming if the contract itself “amounts to” gaming. The court noted rightly that such a construction makes no sense in the context of the statute. After all, the court observed, an event contract could never “amount to” a war, or to terrorism, or to assassination. Instead, the court concluded that a contract involves one of the enumerated activities only “if the event being offered and traded as part of that contract or transaction relates to that activity.”
- Because the court concluded political events are not games, Judge Cobb ruled that the contracts do not “involve” gaming. Nor is the underlying activity – the congressional election – unlawful. Hence, the court found that the Commission lacked authority to prohibit the contracts.
The logic of the court’s ruling, on its face, is not easily dismissed. While, to a gaming lawyer’s eye, defining “gaming” as limited to “games” seems unduly narrow, the CFTC, in seeking a whole loaf, invited being left with none. As the court pointed out, the logic of the Commission’s position would encompass any contingent event. (Among other reasons, in support of its preferred reading of the term, the Commission cited state statutes prohibiting the staking of something of value upon the outcome of a game, contest or contingent event.) Yet, as the court observed, all event contracts involve “staking money on some contingent event.” Under that construction, all event contracts would fall within the scope of the “special rule” allowing advance review and disapproval. The Commission disclaimed any such intention but offered no limiting principle to avoid it that the court found compelling.
Regardless of the outcome of the case on appeal, Kalshi’s victory may prove short-lived. The Commission has proposed a new regulation that would prohibit event contracts involving political events by finding that activity to be “similar” to gaming and categorically contrary to the public interest. Not inconsequentially, the proposed rule also would prohibit contracts involving sports betting. The Sports Betting Alliance and others have opposed that latter change, instead advocating for the CFTC to preserve the flexibility to permit these contracts in order to enable licensed sportsbooks to hedge their economic risks. Nothing in Judge Cobb’s decision is helpful to that position, as neither Kalshi nor the CFTC argued that the current “special rule” does not encompass sports betting.
Whether to permit event contracts on political events is not straightforward. Yes, creating more economic incentives to distort political outcomes may seem unwise, but it seems unlikely that the economic interests reflected by event contracts on these markets will come close to the immense economic interests that already hinge on political outcomes. And the United Kingdom long has permitted betting on political campaigns with no fundamental threat to the integrity of their elections.
In any event, litigation here may prove to have been a side-show, with the Commission seemingly determined to move forward with a ban. The next step may be the (inevitable?) challenge to whatever rule the Commission adopts.
