Prediction Markets and the Public Interest

Experts will discuss risks, opportunities, and the regulatory direction of travel of prediction markets and the public interest.

FISHMAN: We do a geoeconomics roundtable usually once a month. This summer we were questioning whether to do any, but I think you guys have proven that if we do have the right topic and the right speakers we could get people even to come to CFR in the middle of July for lunch. So thanks for being here.

For those who I don’t know, my name is Eddie Fishman. I’m the director of the Geoeconomics Center here at CFR. The way this meeting will work is we will go for sixty minutes. So we’ll stop at 1:30 sharp. I’ll start by talking to Mick and Bobby for about twenty minutes or so, sort of just to get the ground running. As I’m talking, if you—if something strikes you that you want to ask a question, raise your placard like this and I’ll add you to the list, and we’ll sort of get to you as soon as we get to that portion of the conversation.

So without further ado, I think, you know, everyone here probably is interested in prediction markets, or else you wouldn’t have been spending your time here. They’ve very rapidly become a very large market with, you know, billions of dollars of trading volume every single month, on elections, on sports, on all manner of different events. And these questions, I think, are really relevant increasingly for geopolitics and foreign policy, because we’re seeing prediction markets being used to forecast geopolitical events. And we’re seeing, honestly, some moral hazards, where you know you’ve seen a number of instances of people betting on things like the Maduro raid—you know, an Army soldier who was involved in it. So today our goal is to sort of ask ourselves, what are prediction markets actually for? Do they create public value? What harms might they pose? And how, ultimately, should they be regulated by the U.S. government?

Before starting I want to recognize my colleague over here, Sam Lazarus. Sam conceived of this roundtable. And he’s going to be leading a new project here at CFR on prediction markets and the public interest. So I hope you’ll all get to know Sam over the coming weeks and months as well.

So our speakers today are kind of the perfect duo to help us understand this topic.

On my right, you have Mick Mulvaney. Mick is the director of Gambling is Not Investing, a group that focuses on the risks of prediction markets. He previously served as the White House chief of staff, the director of the Office of Management and Budget, acting director of the CFPB, and a member of Congress. So extremely long resume of policy roles in Washington.

And then on my left we have Bobby DeNault, who is the head of enforcement and legal counsel at Kalshi, which is one of the major prediction markets here in the United States.

So, Mick and Bobby, thank you for being here.

So, Bobby, I’m going to start with you, given that you’re sort of on the inside working at one of the leading prediction markets. I want to start with first principles. Do prediction markets create any public value? And if so, what value do they create?

DENAULT: Thank you so much for having me. It’s great to be here today. Great for all of you to join us. I appreciate everybody taking time out of your sunny summer day to sit with us and talk about prediction markets.

I do think it’s been fascinating to watch what utility prediction markets have to offer. And we’ve watched that unfold over the last few years. I think in a world of social media bias, clickbait, less reliability in polling, we’ve seen a use case for prediction markets where they cut through the noise and allow users, both traders and people just using them in order to make decisions or as informational tools, to understand the world around them. And there’s three specific use cases, I think, that have emerged specifically over the last year or so. The first, sort of as a legitimate decision-making tool. We’ve seen academic papers start to emerge, including a paper by the Fed. called Kalshi and the Rise of Macro Markets, defining how these markets, certain economics markets on Kalshi, offer substantially significantly improved readings on things like unemployment or the consumer pricing index. And the value of those markets is something that the Fed and other financial institutions are beginning to observe and utilize as they’re making certain economic decisions.

I think there’s a separate use case that’s emerging too where small businesses are using these markets to hedge risk. Over the course of the last few months we’ve seen, as the Knicks finals took over New York City, certain bars, certain establishments were offering promotions for users to come in—or, for customers to come in. And in order to offset potential losses from those promotions, they took positions on prediction markets like Kalshi. And that is a use case we’re seeing increase across the country. Just recently we saw an ice cream shop talk about its hedging on our weather markets in order to offset losses on rainy days. And so I think there is a small business use case for hedging risk that’s emerging, and likely something we’re going to see increase as the markets and prediction markets expand.

But lastly, I think they’re really an antidote for misinformation, and especially in the election space. You know, just today we launched a U.S. midterm elections hub with a big announcement down in D.C. And our elections markets are increasingly becoming a source of truth used by both voters, traders, and candidates themselves, who are looking to these markets and seeing that they pretty accurately predict the results of elections. Three months out from an election, I think recent data shows, nine out of ten times prediction markets are accurately predicting the winner. So there are certainly use cases that have emerged. Those are a few that I’ve observed, but I think they do provide significant utility. And that utility is likely to expand.

FISHMAN: So, Mick, is there any part of what Bobby said that you agree with? And where do you think his argument breaks down?

MULVANEY: I actually agree with a little bit about it. First, let me apologize for my appearance. I spent eleven hours yesterday in the Miami airport trying to get here, and then had a 5:00 flight. So I apologize for wearing the same clothes the last couple of days and not shaving.

FISHMAN: We actually didn’t know that, but. (Laughter.)

MULVANEY: Yeah. If you’re sitting close enough to me, you will before the end of the afternoon. (Laughter.)

Look, I actually don’t disagree with all of that. I think there’s value in what these folks do. I think there’s risks. I think we could—you know, we hope we can have the chance to talk about that today. And then I think there’s abuses. And I’m here mostly to talk about the abuse related to sports gambling, which we will talk about over the course of the next hour, but I think it’s a legitimate tool. I do believe in the wisdom of crowds. I think that’s absolutely—in fact, it’s probably provable that there’s value there. Yes, there’s value to allowing small businesses to hedge. Is it an antidote for misinformation? Yeah, it can be.

But if I’m talking—if I step back—again, we want to—I want to talk more about sports gambling at some point. But just talk about generally, the risks that you run are—should be obvious. That the same legitimate decision-making tool can be abused. You folks, I think, saw it in here. Didn’t Bill Ackman admit he tried to manipulate the election here by betting on one side of the governor’s race? Or, excuse me, the mayor’s race? And if he’s admitting it, who’s not admitting it? Are there—is there a potential for misinformation? That’s something to talk about. When you talk about the insider interference in trading—I know we’re going to talk about that today. But really what we’re focused on at our group is the is the overlap between the prediction markets and sports gambling, OK?

Eighty to 90 percent of what they do is on sports. And I got into this—I wrote an op-ed—I’m from South Carolina. I was in state legislature in South Carolina. And we have decided to ban sports gaming in my home state. I disagree with that decision, by the way, but I respect it, OK? And when this became an issue in South Carolina, I wrote an op-ed and said, look, it’s sports gambling. It just is. And we’ve made a decision as a state not to allow it. So for the CFTC to come in and say, we don’t care, South Carolina, what you say, we’re going to go ahead and approve that, I have a difficulty with that. Now, I know they say, well, it’s not really sports gambling. But I got to tell you, it seems to me that if you and I have a sports—a contract on the outcome of the Yankees tonight, that looks a lot like sports gambling. In fact, I don’t know what else it is.

And, yes, you could make the case that there’s value to small businesses to hedge. That they’ll tell stories today, and rightly so, about folks who say, well, I’m going to—I’m going to bet on the on the Knicks game, and I’m going to give free beer if they win, and if they lose, et cetera, I can hedge that way. That makes complete sense. That’s available in many states where it’s legal. But there’s other states who have made the decision not to make it legal. So that’s really—look, we have long conversations about the general weaknesses in prediction markets. And I’m happy to participate in that. At the same time, I’m happy to participate the general value of prediction markets. But really, what my group is focusing on is the overlap between this and sports gaming, sports gambling, sports betting, that is legal in some states and illegal in others. And if CFTC has its way, it’ll be—it’ll be legal everywhere. And we don’t think that’s right.

FISHMAN: So, Mick, just so I have this clear, your argument is that it’s not necessarily that sports gambling is bad. It’s just that we have a regulatory regime for that in which the states get to decide whether or not they allow it, in South Carolina or some other state.

MULVANEY: I love gambling.

FISHMAN: And this sort of—(laughter)—right now you don’t live in South Carolina.

MULVANEY: I live in a state that it’s not legal. You’re looking at probably the only member of Congress who won two poker tournaments in Las Vegas. I mean, I love gambling. I mean, it’s not that I think that there’s anything immoral or illegal about this. My state has made the decision. OK? And, by the way, we have generally—and I know there’s some lawyers here—generally we have deferred to the states on really two really, really big issues—alcohol and gambling, OK? There’s a reason that for my—most of my adult life, casino gambling was only legal in one or two states. Because the federal government said, you know what? It’s none of our business.

Gambling has always been something we defer to the states on. And I think we should continue to do it. No, I do not think that gambling is wrong. This is not an anti-temperance movement—or, a temperance movement. This is a state sovereignty issue, a protection issue. My state has made the decision not to allow it. Other states have made the decision to allow it, and regulate it and tax it. And if you don’t—if you have difficulty with it, there’s an infrastructure to deal with that. They raise money for the schools, et cetera. The CFTC decisions have allowed that all to be sort of thrown to the side. And that’s what—that’s what we’re focusing on.

FISHMAN: So, Bobby, what does Mick not understand then about the distinction between prediction markets and sports gambling?

DENAULT: So we don’t operate financial regulations or U.S. law on the way something feels. There is fundamental differences between regulated gambling, that happens in states at casinos, at sportsbooks, where individuals go to places that serve alcohol or have smoking indoors and you can play poker games or slot machines and send your money to the house. That is what gambling is. A regulated financial exchange operates fundamentally differently than this. The business model is entirely different. We don’t profit when customers lose or win on the platform. We are agnostic about how they trade. And some of the arguments that Congressman Mulvaney is lobbying here were the same arguments that were lobbied against oil futures and grain futures in the sixties and seventies, as they were listed products on financial exchanges. And those industries have grown to not only be trillion-dollar trading industries, but the envy of the world as regulated financial markets and financial products.

So there are lots of financial products that touch on similar topics. Insurance and swaps looks very similar. But we regulate them differently. And so states absolutely have historically had the purview to police what happens at casinos, that have historically been linked to organized crime or other risks like alcohol. They have historically had regulation over things like sportsbooks, that are the house that have every incentive to chase losses by customers because the more their customers lose the better they do. But where that business model does not exist, where all you are doing is offering a highly regulated financial marketplace for individual users to trade with one another, we have historically ceded that power to the federal government, where it’s licensed exchanges following strict federal regulation, offering fair markets that are surveilled by teams like mine. And I think that there is room for both products and both regulatory systems to comfortably exist with one another.

MULVANEY: Very briefly, because Bobby’s not wrong. But here’s the example I use. If Eddie and I have got to—want to bet on the Yankees game tonight, OK, and I we bet twenty bucks. Who are they playing now? I can’t remember. I got no idea. But we bet on the Yankees game tonight. Is that gambling or investing? It’s probably gambling. I don’t think there’s anybody in the room that would say it is investing, OK? If we can’t find each other, but Bobby introduces us to each other so that we can then set up that that match, does that change it from a sports bet into an investment? I don’t think that it does. It’s the exact same thing. Yes, they’re not the house. They’re not making money off of losses. They’re not setting the spreads. I get all of that. They are making the market. But the fundamental transaction is still a bet. It’s a sports bet. And it doesn’t change just because they’re not making money off of it. The fundamental transaction is still, if the Yankees win he gets money, if the Yankees lose I get money. And that’s not an investment.

DENAULT: I want to interject on this a little bit, because that definition has no limit. If there is a trade between two parties, if this happens I get the money, if this happens you get the money, defines most swaps, most trades, most insurance contracts. So then the definition of gambling is limitless. And it should all be regulated by state gaming commissions, who really only have regulations that are designed to raise revenue and police local casinos and sportsbooks that are licensed in this state.

MULVANEY: It’s one of the things we worry about, is that—you know, you could—how far away are we from a—by the way, several years ago Kalshi took the position that the CFTC had no jurisdiction over this. They were involved in a lawsuit. I think—was it in Wisconsin? I can’t remember. Where they were trying to make the case that they should be allowed to have election prediction markets. And they said, the CFTC can’t gamble. Now we hear, you can’t do gaming. Now we’re hearing, they’re doing gaming. So I’m wondering where we are, how far away from them developing an app with a roulette wheel on it, and you and I instead of betting on the Yankees game can sort of have a contract on whether or not the next number comes up black or red. (Laughter.)

DENAULT: So I can answer this for you, I think.

FISHMAN: And then I’m going to interject.

DENAULT: And then you’re going to interject. I promise. (Laughter.)

FISHMAN: I’m going to give you ten seconds.

DENAULT: I promise. This is the first time Congressman Mulvaney and I’ve been together, so we have to catch up. On the first point that you just made, a few years ago when we were having litigation over election contracts with the CFTC, that point was made in response to inquiries about if there is a sports contract listed, would the CFTC have authority to engage in a public interest review over that contract? And under the current legislative framework and the CFTC’s rules, the argument was made that, yes, the CFTC would have the right to conduct a public interest review of that contract. That’s still our position.

And the new proposed rulemaking that the CFTC is engaged in explicitly prohibits the example that you just listed, that what’s next might be a roulette wheel or a casino-style game. Well, that’s explicitly prohibited in the new rulemaking the CFTC is engaged in. And I think that’s something actually that the organization you’re working with and many of the clients that, you know, are on the other side of this litigation from us should be happy about, and supportive, because it does prohibit casino-style gaming prediction markets.

FISHMAN: All right. I want to pivot to elections, because, you know, I think that this is extremely interesting. We also have somebody here who’s been an elected official. You spent a lot of your career in politics. What’s your perspective, Mick, on prediction markets in elections? Do they have utility? And do we need guardrails? You know, should candidates be able to bet or, you know, trade on their own election? Or should, you know, voters in the same state be able to vote in the same election and then also, you know, vote—trade on prediction markets?

MULVANEY: Yeah, look, to me it’s one of the things I think there is value. I really do. I also think there’s risks, which is why traditionally we’ve let the states sort of do that balancing act. In Wisconsin, I think they just—in fact, you’re probably more familiar with it. They made a decision just yesterday or something like that, on—in Wisconsin, the state government is taking the position that you can’t bet on elections, because then you’re trading on insider information.

DENAULT: Or, that you that you cannot vote. If you trade on an election, you cannot vote in the same election.

MULVANEY: I think it’s a fascinating question, because that’s—and my point is this, is that we can disagree, we can agree. I think there is value, generally, in these things. I also think there’s risks. But it has it been the—has it been the federal government that’s done the balancing, or the states? And on gambling, it’s been the states. By the way, the Wisconsin example might be easy to dismiss until you realize there’s elections for everything. I mean, there’s elections—I mean, there’s elections—I had a mayor election in my state one time where I think forty people voted. And, you know, you get a bunch of people together in a room and say, hey, we’re all going to vote for candidate X, let’s go out and bet on that. It’s a really fair question to ask. The question is not whether or not it’s good or bad. I think there’s value. You think there’s value. I think there’s risk. You think there’s risk. Question is, who should regulate it?

FISHMAN: Yeah, and to that point, Bobby, I know you work on enforcement at Kalshi. I mean, how do you deal with—whether it’s someone like Bill Ackman trying to swing an election in New York, or something we’d be even more concerned about at a place like CFR, you know, the Russian intelligence or Chinese intelligence trying to interfere in U.S. elections by making big bets on prediction markets?

DENAULT: So we deal with it with a multifaceted approach that any regulated, licensed U.S. exchange would. So, first of all, we have know your customer rules that define how individuals can access these markets. We have to collect a person’s name, date of birth, address, their social security number, and usually a form of identification when they onboard onto the exchange. And these are the same parameters followed by other regulated U.S. exchanges. They’re also followed by sportsbooks in the states. And so it’s a way to verify who’s actually accessing these platforms. We block countries. We use certain tools to detect where individuals are coming on from, certain risks they present. We use third-party vendors to do that KYC process. And so that helps us prevent potential bad actors from sanctioned regions for onboarding to the exchange.

That’s at the threshold. Then we have lots of surveillance and monitoring tools that we levy over all the markets twenty-four/seven. So the CFTC regulations require us to surveil all of our markets for manipulative activity, insider trading risk, and other issues all the time, and generate real-time alerts to a human surveillance team that handles and clears, or escalates those alerts, as appropriate. And then we have a legal team and an investigative team that works on any issues that emerge that might be nefarious—market manipulation, or other things like that. Specifically on this election—

MULVANEY: And you guys caught the guy who did it at the White House, right?

FISHMAN: The teleprompter guy.

MULVANEY: Yeah.

DENAULT: Everybody wants to talk about the teleprompter guy.

MULVANEY: I want to talk about him. He used to work for me, so yeah. (Laughter.)

DENAULT: I met him. Yes, we did. Our surveillance team caught his trading activity. And we had his identification information. And he, you know, provided us—we investigated the situation. We conducted an interview with him. And then, within a matter of weeks, sent that matter to the CFTC. And so, to me, that’s a great example of how this type of enforcement can and is supposed to work. And so we’ve been working with them over the last few months to cooperate, give whatever evidence they might need to pursue that action. The truth is, all bad actors—every market has bad actors. No market can stop all bad actors from accessing it. The key is to build tools that can, to the extent possible, prevent, but where not possible, detect and punish bad activity where it happens. That’s how all regulated financial institutions approach this type of behavior. That’s how we’re approaching it.

I would take a moment to distinguish that from some offshore platforms that don’t take those steps and don’t KYC all their customers and don’t know who’s trading on their exchange. And I think that that’s something lawmakers or people in this room who are writing academic research about how these markets are operating should take into account when they’re analyzing potential insider activity or manipulative activity that’s happening on prediction market platforms. But, separate and apart, I do want to just touch on this with elections. We recently published a case study on the L.A. mayoral election, and a very large trade that was placed for Spencer Pratt, who was a former reality TV star who was running for mayor out in L.A. And on a single afternoon, a trader made a very unusually large, over a million dollar, trade for Spencer Pratt to prevail in that election.

And you would think that that trade would distort his odds and make him seem that, you know, he had a high likelihood of winning that campaign. The market corrected that position in nine seconds. And so market participants have an incentive to correct and pick up free money on the ground, essentially, when people are coming to these markets and trading with ulterior motives, with the motive of making a candidate look better than their real standing is. Well, for those who are trading to make money, bona fide trades in these markets, that’s a great opportunity. And so, you know, we see the expansion of these markets and increased volume in these markets as the antidote to sort of distortion or attempts to distort someone’s odds of winning an election.

FISHMAN: So I’m going to open it up to questions in a minute. So if you have a question, raise your placard. I’ll start taking down your names. But final question for you, Mick, before opening it up. Maybe two-part. You mentioned insider trading. And we talked about—you said you wanted to talk about the teleprompter guy. I mean, do you think that insider trading is a uniquely—is a unique problem to prediction markets? Something that’s worse in prediction markets than other markets? And then maybe, what do you think the regulatory end state should be? It’s clear that you’re not—you don’t agree with Bobby on the current status quo. What do you want to see?

MULVANEY: Yeah, I think the second one first, which is easier, because I want to respect the state’s decisions on this. Yeah, because—again because—and there’s a historical sort of environment that I think justifies that. The insider trading thing—the fascinating thing about the kid that is trading in the White House was that I’ve talked about this guy for the last five or six years. They said, you know, is chief of staff the hardest job in the White House? No, the hardest job in the White House is the guy that actually runs the teleprompter for Donald Trump. And they’re, like, why is that possible? Because he leaves—he leaves the script all the time. And this kid actually had the ability to figure out where Donald Trump was coming back into the script, which has nothing to do with this but it’s a fascinating story about how the White House works. (Laughter.)

Look, I respect what Bobby said. I’m glad to hear that the mayor’s race self-adjusted in nine seconds. The more we can do to prevent that sort of insider trading, the more things you can do to build the credibility of markets and the faith in markets, I think that’s fabulous. It doesn’t really contradict what we’re talking about in my organization. We want them to go off and be able to do election markets. We want them to—as long as they do it properly. Yes, there’s risks. It’s when it crosses that line over into sports betting and other things the states have said, no, this is too far for us. Whether or not that’s casinos, whether or not that’s hedging for bars and stuff like that. That’s the issue.

So, yeah, we have the same concerns everybody else does generally about insider trading. We also have a little bit of concern about—and I had the discussion with one of the law professors, with Donna, beforehand. I ran a federal regulator. I ran the CFPB for a year. The C in CFPB, for those of you don’t know, is consumer. And we are sort of—we were we were a consumer-facing organization. And there are certain things you do when you are a consumer-facing organization that the SEC doesn’t really do, OK? And that—and, quite frankly, the CFTC doesn’t do. I know the CFTC people. I worked very closely with them in the first administration as they were trying to figure out who had jurisdiction over crypto and so forth. They do a really, really good job of protecting markets.

I do not think they’re set up to adequately protect consumers. I think there’s an important difference there. I think the states can—have made a decision that they want to do that. They set up the infrastructure. We haven’t talked about taxes yet. Maybe we get a question about that. But I think that’s the issue. So we have some of the same general concerns that Bobby does. Our specific concern moves when you get closer to sports gambling.

FISHMAN: So when I call on you, if you could just introduce yourself and your affiliation. So, first, I have Rana Foroohar.

Q: Hi. So I’m Rana Foroohar. I’m a columnist at the FT.

The last time we had this conversation in a big way at CFR, you know, was right after the financial crisis. Around that time, financial markets were three times the size of the real economy. They’re now about six times, depending on what day you’re talking about. This is a—what’s happening now, the repackaging and repackaging and kind of creation of these—what I think of as more holographic markets that layer on top of the real economy, is classic late-stage bubble stuff.

So I’m curious how you guys internally are thinking about that, when the meltdown eventually comes? And the leverage which you can’t see as well in your market, versus, say, someone who’s just trading stock on equity markets, you know, being regulated by the SEC in a straightforward way. How are you guys going to deal with, or even are you having a conversation about, you know, when the Archegos moment comes, and somebody has been using prediction markets to make a play on Tesla and is leveraged at three times what they could be if they were, you know, in a baseline trade in the stock market, how do you think about that? What are you going to do?

DENAULT: Well, what’s interesting, I think, about our exchanges, for event contracts we only offer fully collateralized trading. So there is not leverage trading of standard event contracts. There is some leverage on perpetual futures, which we could talk about. Sort of I think it was a topic you might want to touch on.

Q: Very much.

DENAULT: But that is unique to the specific subset of markets that are offered on the FCM and futures products, perps products. But on the event contracts front, where you’re talking about Tesla markets or other markets, those are fully collateralized. And I don’t think the leverage issue presents itself the same way.

I think, to your point about a meltdown or a bubble, one thing that prediction markets do very well is distill things down to specific questions. They’re basically breaking down what stock analysts used to do to try to sus out whether they should or shouldn’t take a position on a stock. We’re breaking down those individual analytical questions on a yes or no front. I think there is significant opportunity for individuals who sense that there’s a bubble in the economy or risk in the economy to hedge that risk by taking positions on prediction markets. And so as the space grows and the regulatory structure on it grows, we’re likely to see, I think, additional regulators come into the fold on certain types of potential event contracts that might touch on securities or might touch on other types of instruments. And so I think it presents an opportunity for a lot of traders to hedge risk on a bubble.

MULVANEY: I think it’s a—that’s a really good answer. I tend to agree with it. It’s the right answer to give. And I’m glad to hear it. So I’m not—I’m not fighting you. Here’s the point I would make to you, what you’ve just described is probably that much of their business. Eighty to ninety percent of their business is the Yankees game tonight. So I think we’ve sort of—you’re losing the forest for the trees on that. It’s the right answer, but I don’t think it really has the impact you worry about, because it’s not that big a deal at what they do.

DENAULT: Well, I would push back on that a little bit. That number fluctuates based on events.

MULVANEY: I would expect as much.

DENAULT: Of course. Yes. That number fluctuates often. You know, the World Cup, for example, was very big event on call sheet. It was a big event on lots of marketplaces. And the market share of sports increases when those events happen, and then decreases. Over the next several weeks, it’s likely to be very small number, right, so that we’ve seen go as low as 60 or 70 percent and then climb back up to 70 or 80 percent. The more markets that we offer, especially in the perpetual futures space, we expect that the sports share of what we offer on the prediction market space to shrink. And so, I mean, even the last six weeks that we’ve offered perpetual futures, I think we’ve already hit a volume of 17.5 billion in volume. And so I suspect that that space is likely to grow. And institutional interest in these markets is also growing. And I suspect that’s likely to shift these numbers as well.

FISHMAN: All right. Next up we have Esther Dyson.

Q: Esther Dyson, author of a book about AI and human mortality and interesting stuff.

I’m surprised nobody has even mentioned the word addiction. Because I think everything I’ve heard, you know, there’s two sides to a lot of this. Obviously, insider trading is bad, blah, blah, blah. But it’s very clear that there’s a huge—an increasing number of people who are getting addicted to gambling in one form or another. And that’s probably the most direct, consumer-facing impact of this. I’d just love you both to address it.

DENAULT: I’m happy to start.

MULVANEY: Go ahead.

DENAULT: It’s something we are taking very seriously at Kalshi. And over the last year, we’ve implemented a number of measures targeted at protecting and making sure that our users are safe, including monitoring of potential losses on their accounts, sending them the ability to set deposit limits. We have the first nationwide self-exclusion program, so if a user self-excludes from our prediction market it counts as a universal self-exclusion from other prediction markets using an integrity vendor that we partner with. But it’s something—you know, we are—I don’t think this is limited to just prediction markets. Anyone who lived through COVID saw the explosion of retail trading, and crypto trading, and Wall Street bets on Reddit, and all these forums for retail users to get involved on financial apps where they’re trading. And I think that this spans from sportsbooks to stock exchanges to prediction markets. And so we are taking it very seriously.

I would like to see, you know, other regulated financial exchanges also implement measures too. I think it’s across the board that we need better protections for retail consumers. But it’s something we’re focused on. And I know our CEO was in Washington last week with several representatives and basically pitching legislation on this issue, on consumer protection issue for both prediction markets but also sportsbooks and casino apps. And notably absent were a lot of the state-regulated consumer protection-focused organizations, like sportsbooks and casino apps. And they don’t support a federal nationwide framework for consumer protection. And so I think that absent, you know, their putting their money where their mouth is, so to speak, and going to Washington and supporting real addressing of this problem from a federal level on a nationwide scale, it’s a little hollow that they pretend to be so focused on customer protection. We would applaud them joining us in supporting federal uniform consumer protection approach.

Q: Do you publish any numbers on that issue?

DENAULT: I don’t know if we’ve published any numbers yet, but we have recently launched a partnership with NCPG. And they are launching their own focus on trading on apps, financial apps and prediction market apps. And so I believe as part of that partnership we’re likely to publish some scholarship on this issue in the prediction market space. And so certainly would be happy to send it along to you when it’s out.

FISHMAN: Mick, did you want to weigh in?

MULVANEY: Yeah, I guess all I can add—and I don’t know if it’s exactly on point, but I think it’s a sort of a data point to keep in mind when you have that conversation about addiction—is that most states sports betting is twenty-one. For the CFTC, it’s eighteen. So it’s a larger universe of younger people. So if you worry about addiction, you worry more about an eighteen, nineteen year old than you do a thirty year old, probably.

FISHMAN: It’s a good point.

Q: I’m not sure why, but.

DENAULT: Yeah, I think I’ve seen—I think we’ve seen examples in people who are forty-five and people who are twenty-two. I think, you know, we have taken some targeted approaches on eighteen to twenty-one. They don’t—you know, they’re not allowed to use credit cards. We monitor their accounts for specific losses, et cetera. But I take your point. I do think addiction spans any age, though. And it can be a problem at any age.

FISHMAN: Nate Loewentheil.

Q: Two comments.

FISHMAN: Introduce yourself.

Q: Oh, sorry. Nate Lowentheil. I’m the founder of a venture capital firm called Commonweal Ventures. Thank you guys for the great discussion.

I guess, you know, two comments. One, I understand the debate you guys are having on the sort of sports betting side. But as I think about the future, I tend to agree with Bobby. I think there’s an enormous opportunity for these markets. I mean, the sports betting is one thing. Elections is a second. But this third area of betting on global events and economic indicators, there is so much opportunity for large institutional investors to use those to hedge out positions. And I think that market is nascent, but I think that could be truly an extraordinary opportunity. And, to Bobby’s point, you know, when you trade on a stock, you’re trading across multiple potential variables. The CEO dies, they have a bad quarter on sales, or there’s some exogenous shock that impacts it. And what the prediction markets allow is to segregate out that variable and hedge against it. And I think that hedge can be a very, very powerful tool. And there are folks here who are much more knowledgeable than me who are trading on energy, you know, futures every day, or trading on, you know, economic events. So that that’s the first comment.

Second comment cuts a little against that, which is, I mean, on elections specifically, I actually think the prediction markets are really not valuable at all. I mean, they actually don’t do a very good job predicting elections. I mean, to say that nine out of ten elections we predict accurately, it’s, like, well, nine out of ten elections are really obvious. It’s the tenth that’s much more complicated. And what I actually think the prediction markets tend to do on elections is literally just repeat the current noise. Like, they’re like a way to monitor the media discussion on an election because the media will say, oh, this person’s ahead. And the prediction markets, like, tend to correlate with that, whereas they’re actually not often speaking to the underlying reality of elections. So, I mean, that’s not really for against you guys doing it. It’s just an observation from me watching those markets over time.

FISHMAN: Mick, you have any responses on that?

DENAULT: Just on the elections point, so we don’t list every single election on the platform, right? So there are elections where it’s 99 percent likely who’s going to be the prevalent winner. And those election markets would probably not attract much volume. So not every election is listed on Kalshi. Of the competitive ones that are listed, I do think that accuracy rate still speaks for itself, where nine out of ten times three months out they’re accurate.

I will say just personally, as a user, you know, 75 percent of our users are just coming to the platform to look at data. Only 25 percent of our users are trading. So they are becoming a data source. And we do think politics is a particular place where people are coming to them to look. And I think part of that is because the discourse in the media about elections is somewhat incentivized to make things interesting, to make things feel competitive. I remember last summer with the mayoral race here in New York, you couldn’t—you know, it seemed like Mamdani was ahead, but it didn’t really feel certain. And it seemed like there was a lot of opportunity for races to shake up, et cetera. But on our platform, Mamdani was over 75 percent basically the entire summer. If you were looking for some clarity on what was most likely to happen, you could get that clarity there. But you might not be getting it from the New York Times. And that’s where I really think that they’re useful.

FISHMAN: So, Nate, one other just point to make is I would agree that there’s almost—there’s almost certainly utility in terms of forecasting global events. I think, in fact, the first major prediction market was created by DARPA in the early 2000s before Congress basically decided that it wasn’t OK to move forward. I think, though, there is this problem where a lot of the people who are probably best placed to make these types of bets—you know, say, diplomats or intelligence officials, are the same people who—you know, there’s a moral hazard and probably shouldn’t be allowed to bet on prediction markets. I know at CFR as fellows, for instance, we are—we have a policy where we don’t—you know, we don’t trade on prediction markets. So I do think there’s sort of a double-edged sword there. OK.

MULVANEY: And the point about the 75 percent of people coming looking for data, I think that’s very interesting and helpful. And, by the way, I agree with you. There is some value, for example, in energy. I don’t have the ability as an individual to—I can, but it’s really hard to do—to buy oil futures. If it’s easier on Kalshi, then that’s it. And I get that. But when it comes to the data, you also wonder about who’s looking at the data. I don’t know about you folks, I actually do follow the pizza thing at the Pentagon.

FISHMAN: Oh, the Pentagon pizza monitor, yeah.

MULVANEY: I do. And now there’s reports about foreign intelligence services monitoring your service in order to see if they can pick out inside information.

DENAULT: I mean, they could just monitor the pizza tracker if that’s really what’s driving the trading activity. I will say, you know, on that type of risk, we’ve implemented recently a risk scoring framework that takes into account national security risks for all contracts that are going live on the platform. And I think, to a degree, you know, we’ve seen certain examples of soldiers going on Polymarket, or other—

MULVANEY: Is that internal, or is that mandated by the CFTC?

DENAULT: So we’re mandated to assess contracts before we list them for susceptibility to manipulation or other potential issues that might emerge under the regulatory framework that we’re governed by. It wasn’t necessarily a mandated by compliance, but it’s consistent with that principle of abiding by not listing certain contracts that might be susceptible to manipulation. I do think, on the national security front specifically, it’s something that we, as a company, have opted into. We don’t want to be listing contracts that relate to kinetic military activity to the extent we can avoid that, because obviously any contract, any company’s stock, could be affected by military activity. But I think, you know, as an exchange it has always been our position not to list contracts like strike markets, or that directly turn on physical violence or military activity taking place. And so that continues to be our policy. And we assess contracts as we list them to see, you know, how attenuated are they, from a potential national security risk.

FISHMAN: Colin.

Q: Thank you. Hi. I’m Colin Teichholtz. I’m cohead of the Office of the CIO at Symmetry Investments.

And, you know, it’s a macro hedge fund. We look at prediction markets all the time now. So, you know, I think it’s quite useful, from a markets perspective, to have that reference point. But, Bobby, I have a question. You know, you mentioned that you’re pretty much indifferent to who wins and who loses. You know, like everybody shows up and it’s an open market. And, you know, I guess, you know, it’s a two-part question. One is the Wall Street Journal has, you know, done some sort of study and reported that on your competitor, Polymarket, something like 67 percent of the profits are going to one-tenth of 1 percent of the participants. And I’m curious if you have thoughts on that. And if you can disclose if Kalshi has a similar profile or looks different in some way. And then the second part of my question is, I believe that Kalshi also has a related entity called Kalshi Trading that is a market maker. And I’m curious about the scale of that, and kind of the public disclosure around Kalshi Trading.

DENAULT: Yeah. Those are two really sharp questions. So the first, I don’t have offhand numbers related to the specific query that you’re asking. But I can say that we’ve seen some statistical data that shows that individuals on prediction markets, including Kalshi, tend to win more often than they do in other types of trading markets, including day trading, options trading, et cetera, and also win more often than they do on sportsbooks. So I think sometimes, you know, you see those numbers and they might look unusual in isolation, but when you look at them in context with how other trading works on all markets people are actually winning more often on prediction markets than they are elsewhere.

I think, with respect to your second question, it was about Kalshi Trading, I think? So Kalshi Trading was created basically around the time Kalshi Exchange was made, so that we could provide liquidity to markets as they launched. Kalshi Trading is not profitable. It’s quite small. And we have other market makers who are participating on the platform and providing liquidity to markets. Kalshi Trading is involved in a very small percentage of sports contracts. It’s basically opening liquidity for markets that don’t receive a great deal of volume on the platform. And so it’s not profitable. And largely, you know, I don’t know how long we’ll keep Kalshi Trading around, but it was sort of a functional need to open volume on certain markets on the exchange.

Q: Just to follow up on one thing. You know, I think there are other kind of professional market makers, obviously, who operate on Kalshi. And I’m curious, do they get the same terms as everybody else? Or do you provide some sort of incentives to people who are liquidity providers?

DENAULT: So we have publicly filed market-making programs, whereby market makers, anyone, can qualify and onboard as a market maker and qualify for any benefits that are distributed under those market-making programs. They’re publicly filed with the CFTC. You know, they don’t get any sort of access or data on markets that anybody else doesn’t get. So they’re operating on the same informational playing field in terms of order book data and other data that any customer who utilizes the platform operates on.

MULVANEY: I go a very brief question to follow up to both you and Nate, because you guys both said you use it and there’s value to it. And I get that. And it makes complete sense. Does that apply to the sports side of the business or not?

Q: I mean, approximately never.

MULVANEY: OK.

Q: We were all watching the World Cup a lot, so we were curious, but I don’t think it—

MULVANEY: It doesn’t provide the same value—

Q: It saved us a little bit of time so we could refocus on markets. (Laughs.)

MULVANEY: OK, but it doesn’t provide the same value as does some of the other predictions?

Q: No, not at all.

MULVANEY: OK.

FISHMAN: Nate?

Q: Yeah, I mean, it doesn’t have an economic relevance at all. I’m not critical of it for that reason.

MULVANEY: I’m just curious.

DENAULT: I mean, it doesn’t have economic relevance to your business.

Q: No, that’s’ right. It doesn’t have economic relevance to people trying to make macroeconomic decisions.

DENAULT: That aren’t operating, you know, in the sports industry.

Q: Right.

DENAULT: But there may well be people who are operating in that industry to whom it would matter.

FISHMAN: All right. Melinda.

Q: Thank you, Melinda Huspen with American Banker.

To bounce off of what you mentioned, Bobby, with institutional interest, at this point banks are largely limited from hedge funds due to the Volcker rule. But as there is institutional interest in prediction markets, such as Kalshi, and prediction markets start getting folded into more traditional investment portfolios, what does that mean for institutions, such as banks that are separately regulated, in the risk exposure that they have when it comes to these prediction markets entering the more traditional investment and financial system? And how is Kalshi, or prediction markets in general, preparing for that intersection between the more traditional investment firm side and the more alternative side, even as you end up running against regulations such as the limits of what banks can be exposed to?

DENAULT: It’s a really great question. It’s been extensive cooperation between financial institutions and our team at Kalshi in, you know, providing data and information about how these markets operate, what controls we have in place on these markets. And they’re looking themselves at what public data is available so that they can, as you know, develop risk assessments and profiles for trading in certain types of macro markets on Kalshi. You know, the CFTC regulations require so much of the data about trading activity and contract resolution on Kalshi to be public. So they are able to sort of ingest all that data themselves and take a look at what the risk profile is for certain market spaces and certain categories, whether it be politics or economics, et cetera.

And then from, you know, an additional compliance perspective, I’ve had direct conversations with a number of financial institutions. And we’re partnering with certain third-party compliance vendors that banks and other financial institutions utilize across the board in their various exposure to different financial markets. And so we’re excited to launch some of those. We recently launched a partnership with StarCompliance, which a lot of institutional financial players utilize in order to ensure compliance, and risk compliance specifically, across the board. And we’re probably going to be announcing a few other partnerships in the coming months, so.

Q: And if I may have a quick question for Mick as well?

FISHMAN: Sure.

Q: My question for you is, based off of your experience on the federal regulator side, and just following the litany of lawsuits that are currently at the state level and even at the federal level with different predictions markets, what do you see as the likelihood for these cases, especially as they’re decided differently from state to state or from one appeals court to another, to be appealed up to federal appeals courts, or even the Supreme Court? What is the actual likelihood of something like that happening?

MULVANEY: Part of that is really easy. What’s the likelihood of a piece of legislation? Roughly zero. Just because that’s the likelihood for just about any piece of legislation right now, including funding the war or keeping the government open in September. So it’s just—Washington is a really—it’s hard to exaggerate how poisonous the atmosphere is down there right now. So I don’t think you’re going to see Congress. You see Congress weigh in. You guys do hearings. We’ll do hearings. All that kind of stuff. And, you know, they’ll do some good work in terms of their sort of oversight and investigations. But I cannot see a piece of legislation one way or the other. One of the issues right now is that—we have a difference of opinion, but I think we might agree that the enabling legislation for the CFTC isn’t 100 percent clear. They take one side of it, we take it the other, et cetera. I don’t think we’re going to get any more clarity from Congress as to say the CFTC absolutely can do this or absolutely cannot do this, OK? So that means it goes to the courts.

I’m with you. I think there’s going to be a split in the circuits relatively quickly. What, the letter from the AGs had forty-one attorney generals on it. I don’t know of anything else in this country right now that gets forty-one attorney generals on the same page. So clearly, there’s going to be Democrat pushes in Democrat states, Republican pushes in Republican states. So you get a split. I mean, predicting what the Supreme Court does, if they take it—and I think they ultimately will have to—is really, really tough business. But if you go down, I think you can make the case—it may not be 100 percent compelling—that, given some of the recent decisions out of the Supreme Court, that they probably err on the side of the states. That if there’s ambiguity in the federal legislation as to what the CFTC can or cannot do, they’re going to defer to the states and say, you know what? Congress can come in. If Congress wants to give this explicitly to the CFTC, let them act. But short of that, we’re going to—we’re going to respect the historical role of the states when it comes to gambling.

Q: Thank you.

FISHMAN: Ross, try to be quick.

MULVANEY: Was that fair? I tried to be fair.

DENAULT: Can I can I add one point?

FISHMAN: Thread it into one of your next answers. I want to get to everyone. Ross.

Q: Thank you. Ross Green with Tusk Strategies, represents the Coalition for Prediction Markets.

Mr. DeNault is here, transparently, with Kalshi. So we have a sense of what his incentives are and what he, you know, wants to see in terms of an outcome. Congressman, I was hoping you could do the same, and let us know if and how much money from the casino lobby, the group that you represent—

MULVANEY: Yeah. And, as you know, the rules don’t require disclosure. They respect—I can’t see you. I’m sorry. I don’t mean to speak and not see you. They respect the anonymity of the donors. Look, we’re adults here. It’d be silly to assume that there aren’t folks involved in our effort who don’t have a financial interest in this. But I think you’d be surprised at the number of non-financial interests that are involved with this. And we’re going to—I think it’s—actually some of this is on our website as of recently. There’s a bunch of consumer groups. There’s the senior group, 60 Plus, is part of our organization. That’s a conservative-leaning AARP. Moms for America are in there. So it’s not just the people you’re contending to. Those are the folks who have allowed us to go public. For the other folks, I will respect their anonymity because the law entitles them. But, yeah, I mean, let’s—again, let’s not kid each other. This is a financial battle. There’s no question.

FISHMAN: All right. Next up, we have Aaron.

Q: Great. Aaron Klein, Brookings Institution.

I want to have a little fun with kind of a couple things both of you guys have said that I think merits a little more scrutiny. Robert, at one point you said that sports was, quote, “very low.” But then when you put numbers, the lowest it got when it varied was 60 percent, which to me is a majority not very low. And I want to talk a little bit about the comment you made about the nine seconds on Stewart (sic; Spencer) Pratt, because I think that’s really illustrative. Now unless individuals are more addicted than Esther is concerned, it is implausible that people are refreshing their pricing screens that quickly to recalculate the market in nine seconds. So it was done by an institutional investor, probably Susquehanna but it could be some other hedge fund. The law respects people’s privacy. Not going to name. But it was obviously individuals versus institutions.

DENAULT: Well, I would object to that.

Q: You think you think there were a million dollars of people refreshing your screen on a nine-second basis to change the market?

DENAULT: That’s not necessary. You can set resting orders on Kalshi. And I would bet that a number of people had resting orders for Spencer Pratt’s price to go up.

MULVANEY: Is a resting order like a limit order?

DENAULT: So, yeah, you would place—

Q: Would you disclose—just on this one specific trade, would you disclose how much money was institutional versus individual?

DENAULT: I don’t even know if legally we’re allowed to disclose PII related to—

Q: It—

DENAULT: But, you know what you can do? The order book is public. So you can see how many traders were involved in the picking up of the other side of those transactions that led for the price correction.

Q: Well, but—so when I get to this consumer issue, right? So I live in the great state of Maryland. And unfortunately, like many Marylanders, we have to go to Delaware sometimes. (Laughter.) And when I was in Delaware, I couldn’t bet because Delaware has this corrupt crap app thing, because it’s Delaware and it sucks. (Laughter.) But three clicks through FanDuel, and I was now on FanDuel predicts. And as a new FanDuel predict market customer, who can wager in Delaware despite the evil Delawareans, I now just pulled up for a little bit of fun, and to anger Mick, the odds of the Democrats winning the Senate. And this is not on your platform but on another. And it’s +104. But if I wager $100, I actually win 196 (dollars), which is a (-102/50 ?) if you’re a gambling addict. (Laughter.) What’s the difference? Well, the difference is a small transaction.

MULVANEY: The vig, right?

Q: Right. Which, if I take my glasses off, says my total amount wagered is only four cents less, including fees. But that math doesn’t add up. So it’s more than four cents, because my payout is different. Now, I’m sure if I clicked through seventeen terms and found out what I agreed to Apple on whatever app, I could understand where the extra $6 is going.

The CFTC has absolutely no experience dealing with individuals on this and no consumer relation. And meanwhile, I believe, in nine seconds—and I’ve read a lot of stuff about your book and the share of people that are institutional on the Knicks or college sports or other things. And I kind of want to get to this question of, on your end, on the sports side—which is the majority of your business—why you think institutional investors are so interested in wagering on sports outcomes?

The second question I want to ask, to have some fun with Mick, is Mick went super states’ rights. And he did it so flagging two things, alcohol and sports. Now I’m super liberal, as folks in this room may know. But the two issues that you raise, Ronald Reagan jammed through a federal drinking age in this country over many states’ objections. And Donald Trump is ramming through federal gambling, through sports predictions through many states’ objections. So I wanted to ask Mick, as a liberal, I struggle to understand when conservative Republicans are for and against states’ rights. And on these two core issues, which you kind of picked, these are the two where the Republicans are federalizing a position. Why is it them?

FISHMAN: Who would you like to go first?

MULVANEY: I’ll go to Bobby first.

DENAULT: So to boil down the premise of your question, you’re asking why do—why are institutions so interested in trading sports on Kalshi? Is essentially what you’re presenting. I think institutions are, first and foremost, motivated by where people are trading on a financial exchanges, right? So SIG, or whoever it is, doesn’t have any special knowledge of how a sports event may or may not turn out. An individual user who is either a fan of a sports team or sports league or, you know, ingesting lots of data from sports apps, et cetera, might even have a better read on how a sports event is likely to turn out than an institutional participant in that market.

What they are interested in is market making. And so these institutions, they’ve developed expertise in making markets. And this is happening on all exchanges everywhere, whether it’s a stock exchange, whether it’s another derivative exchange, et cetera. They’re in the business of making markets. And so they view the operation that we’ve undertaken, staged under the regulatory framework CFTC provides, as sufficiently stable and well managed that they’re able to market make in these markets. And I think that what you see here, where individual users are able to enter and exit positions on sports trades, given market liquidity, is fundamentally different than how most sportsbooks operate. You aren’t able to exit positions always on sportsbooks if you don’t like how the game is going.

Q: Generally, you can cash out.

DENAULT: Generally, but not always. And not on every type of trade. And so, the truth is, is that institutional players would not be participating in these markets if they weren’t well regulated, well managed. But on sportsbooks, a great—there’s no question that all the profits lost are going to the house. So I think the question of raising, you know, institutional interest in these markets is important, but I don’t think making the perfect the enemy of the good is fair. What you have on a sportsbook is a house that controls the odds, that profits every single time you lose, and has every incentive to chase your losses as a consumer. And that just doesn’t exist from a federal financial exchange.

FISHMAN: Mick.

MULVANEY: Mine’s easier, because I’m going to surprise you and agree with you. I didn’t like the decision on the drinking age. I always thought they abused the interstate commerce clause, which Republicans hate until they decide they want to do something with it. For those of you don’t remember, everybody here is probably old enough to remember, they use the interstate highway transportation funds to beat up on the states. Keep in mind, though, Aaron, back then the parties weren’t as monolithic as they are now. There were liberal Republicans and conservative Democrats. So it’s not—it might not be an apples to apples. But, yeah, you asked me about the Trump administration. I got a lot of problems with some of their economic policy. I don’t like the fact that we now own 10 percent of Intel. I don’t like the fact we just did a billion-dollar investment in IBM. So there’s a lot of things that the Republican administration is doing that I don’t think are very conservative. But, again, that’s not—

Q: But why?

MULVANEY: Why?

Q: I hear you. Like, you know, from my perspective, I struggled. You were inside it.

MULVANEY: I think there’s a different attitude right now in this administration about the role of government. I got to keep—by the way, the day we bought—the day we shook down Intel for their 10 percent, I was on—I was doing some TV that night. I said, look, I really don’t know how, as Republicans, we’re going to attack Democrats for being communists when we’re doing exactly, you know, the same thing. And I got a call from the White House. And they said, did you just call us communists? I said, why don’t you go look up the definition? (Laughter.) Government ownership of the means of production. So, yeah, I don’t think it falls neatly into party lines anymore.

FISHMAN: All right. We have five minutes left. So I think we have time for two more questions, and we have exactly two. So, Jonathan.

Q: Yeah. Thank you. So my name is Jonathan Cohen. I lead gambling policy for an organization called the American Institute for Boys and Men. Nice to see you both.

I want to ask—so many of these questions, including Aaron’s and Colin’s previously, seem to me like to be getting at the delta between like the platonic ideal of a prediction market and then prediction markets as they actually exist in the United States today, including a platform like Kalshi. And I guess one thing, and I’m sorry that it took fifty-five minutes to bring up, would be advertising, right? And one way that Kalshi got so big, right, was—a lot of people in this room might not be on TikTok—but went through a lot of sort of social media advertising specifically directed at young people. And a lot of that, even back two years ago, explicitly used words like “gamble.” Like, bet on football in all fifty states, or bet on college sports in all fifty states. And according to the Wall Street Journal, Kalshi briefly had a partnership with, like, a fifteen-year-old videogame streamer, that your legal team, I assume that was you, sort of put the kibosh on.

And there have been—there have been all sorts of other social media posts, like, oh, I make all my money on Kalshi. I just paid three months of my rent thanks to Kalshi, and so on. So I’m curious—and I say this in all honesty, that Kalshi is, as you’ve said, sort of, the legal, sort of, regulated iteration of—at least from the big—from the big guns of prediction markets in the country. And so how is your advertising sort of overseen, or how does this vision you presented of a, you know, legal regulated prediction market comport with advertising that just seems, like, even the sleaziest casino wouldn’t engage in some of this stuff.

FISHMAN: So, before you answer, Bobby, commit that question to memory, and I’m going to take Eli’s question too. Just we’ll take them both at the same time so we can wrap.

Q: All right, thanks. Eli Carter from Morgan Stanley.

So, Bobby, this question is for you. Earlier in the introduction, I think you were talking in response to Mick saying that—basically trying to talk about defining sports becomes kind of a slippery slope, and, like, preventing markets that fall into this category is a hard thing to do. But then a little bit later, Mick brought up this roulette example, and it sounded like the CFTC has, in some way, stopped those types of markets. So I was wondering, is there some approach that the CFTC can use to define sports in some type of broader way along these lines?

DENAULT: Can I start with that one, just because it’s fresh, and then unpack this?

FISHMAN: Yeah, and try to be brief.

DENAULT: Yeah. So the reference to casino-style markets is a reference to the notice of proposed rulemaking that the CFTC has just put out, or put out a few weeks ago but that the comment period is about to conclude on. And so the way that they go into, it and they do in great detail, about how they’re thinking about defining what constitutes gaming and what constitutes a potential event contract that is related to a financial consequence or some sort of economic consequence, et cetera, helps elaborate on exactly why a casino-style game or a card game or et cetera doesn’t relate to the same thing as a professional sports event that might have certain financial consequences associated with it. And so I won’t get into a long sort of dissertation on the notes of proposed rulemaking, which is, like, over two pages, but it is a helpful place to look at how they’re thinking about exactly what you ask about. So I think that would be a great place to start.

With respect to marketing, so I joined Kalshi almost a year ago. And since then we’ve seen a lot of dialoging about marketing and consumer protection in prediction markets. Over the last few years you’ve seen an explosion of growth. And these are, you know, relatively young companies. And young companies often rush and get out ads and start to focus on growth at all costs, et cetera. And so what you do is you try to hire responsible people to come in and make sure that things are being done the correct way, the right way, et cetera. And so what I can say is that Kalshi has a marketing integrity framework that is imposed. It also has affiliate guidelines that is imposed. And we’ve targeted and removed many, if not all, of the types of ads that you’re describing, some of which have been leveraged in litigation because they’re available on places like Facebook, which makes them publicly available to all people who want to see them, but no users or customers were ever actually shown some of these ads.

And so there was one about someone paying their rent on Kalshi that was pulled by a litigant from Meta, from their public repository of ads. But that was never actually promoted anywhere. And so, you know, I think there’s important distinctions to note that a lot of these things have surfaced months if not years after the fact that they’re airing. We’ve taken a lot of steps to ensure that the ads that we’re airing are compliant, that they meet our responsible marketing framework, which includes not targeting folks under twenty-one, and basically making sure that we’re responsibly advertising the risks that are attendant to trading derivatives contracts like event contracts.

FISHMAN: All right, Mick, any last words?

MULVANEY: I’m going to pretend this is a congressional hearing. Put my old hat on. Pretend we’re in the Ag Committee or the House Financial Services Committee and ask Bobby a question. It’s a serious question. And it gets a little bit to what Jonathan I think was alluding to. Does your technology allow you to discriminate and, say, offer the sports bet to the bar, but discriminate against the nineteen-year-old kid who’s just betting on the Knicks game? Does your technology physically allow you to do that?

DENAULT: Does it allow you to offer it to the bar? To the—

MULVANEY: The bar. The hedge. The hedge. The small business hedge. There’s a bar in New York City that wants to hedge the Knicks game tonight. Could you segregate those people and say, OK, we can deal with these folks, and that’s legitimate use? But we can also discriminate and not offer that bet to the nineteen-year-old college student?

DENAULT: The CFTC regulations and the Commodity Exchange Act require us to provide what’s called fair access to the markets. And so we cannot discriminate based on—unless a user is actually not—you know, prohibited for being from a sanctioned region or being otherwise—

MULVANEY: But the technology—I hear what you’re saying, but the technology could do it, because you guys have to do KYC, KYB, the whole thing, right?

DENAULT: Legally, it would not be possible to.

MULVANEY: OK. Got it. All right.

FISHMAN: Well, look, Bobby, Mick, thank you so much. This was really interesting. See you soon. (Applause.)

(END)

This is an uncorrected transcript.