“DraftKings Predict” no longer has a future in the National Futures Association.
Key insights
- A company connected to DraftKings is no longer a pending member of the National Futures Association, the self-regulatory organization for the U.S. derivatives industry.
- The derivatives industry now includes sports event contracts that pose a challenge to state sports betting rules and competition to state-regulated sportsbook operators like DraftKings.
- DraftKings is still taking a wait-and-see approach to prediction markets and sports event contracts.
Days after it was reported a company connected to DraftKings Inc. was a “pending” member of the self-regulatory group for the U.S. derivatives industry – including the sports event contracts that have jolted the gambling sector – that status was withdrawn.
Exactly why the company, doing business as DraftKings Predict, lost its pending member status with the National Futures Association (NFA) is unclear.
But, at least for now, the DraftKings-related entity is no longer under the self-regulatory umbrella of the NFA, according to the organization’s website.
The withdrawal from the NFA also raises further questions about whether DraftKings will eventually launch a prediction market of its own. Doing so could give the online gambling operator access to all 50 U.S. states, rather than just the ones with legalized sports betting.
“DraftKings continues to monitor developments related to prediction markets as an emerging product that reflects evolving consumer engagement and warrants thoughtful consideration,” a company spokesperson told Covers on Wednesday.
What are we even doing here?
What NFA membership and now a lack thereof means for DraftKings isn’t even all that clear.
DraftKings CEO Jason Robins has talked with interest about prediction markets in the past. Several of those markets now offer event contracts that allow users to wager on sporting events such as MLB and NBA games, making them competitors to online sportsbooks like DraftKings and FanDuel.
However, Boston-based DraftKings is taking a wait-and-see approach.
Moreover, prediction markets such as Crypto.com, Kalshi, and Robinhood are regulated by the Commodity Futures Trading Commission (CFTC), not the state-level gaming regulators with which DraftKings typically deals. The NFA’s website notes that, “with few exceptions,” the CFTC requires its registered firms to be NFA members.
Crypto.com is a pending NFA member and Robinhood is an approved member, but Kalshi is neither, according to the self-regulator’s website. So it’s again unclear what DraftKings would have wanted with an NFA membership if it’s not necessarily a prerequisite for launching a prediction market.
Nevertheless, it was reported by The Closing Line newsletter on March 10 that DraftKings Predict was a pending NFA member. That caused a stir and speculation about what DraftKings was planning.
The NFA’s website shows the company's membership status was pending as of July 30 of last year. But, on March 15, that pending status was withdrawn.
DraftKings’ will-they-won’t-they drama with the NFA is, at the very least, another plot line running through the broader story of sports event contracts and the competition they pose for the state-regulated gambling industry.
Kalshi, Robinhood, and Crypto.com are offering sports event contracts for trading across the U.S. That gives those federally regulated entities access to markets like California and Texas, where online sports betting has not been authorized for the likes of DraftKings.
Sports event contracts have created concerns for the gambling industry and its regulators. Several of those regulators have hit Crypto.com, Kalshi, and Robinhood with cease-and-desist letters for what the watchdogs believe is unauthorized gambling within their jurisdictions.
Kalshi has pushed back in court in Nevada and New Jersey, winning a favorable decision recently in the former.
'Rooting for' disruption
The CFTC has yet to tell its regulated entities to stop offering sports event contracts, and might never. A roundtable being hosted by the regulator later this month is supposed to help inform the CFTC’s approach going forward and clarify for others where the agency stands.
In the meantime, there has been speculation about DraftKings and potentially others launching prediction markets of their own.
“The signs are pointing to a positive ruling [from the CFTC], in our view, and in that event the legality of prediction markets will pave the way for sports betting companies to build an offering and launch in the vertical,” investment bank Citizens said in a note to clients earlier this month. “The infrastructure of an exchange slightly differs from a sports betting platform, and we would expect new entrants to initially rent or purchase existing platforms for speed to market. Recently, DraftKings noted to us that it is ‘rooting for it’ when asked about joining the prediction market space.”
