The Legal Conundrum Facing US Prediction Markets

Every US state prohibits all gambling except for activities that are explicitly permitted by statute—like pari-mutuel horse race betting. Gambling is defined as an activity by which the house takes its profit in the form of a percentage of the money bet. This definition would not include play-money prediction markets or internal company markets with nominal prizes. It would technically apply to a real-money market such as the Iowa Electronic Markets, except that IEM is regulated by the government’s Commodity Futures Trading Corporation (CFTC). This registration removes it from the category of gambling.

In spite of CFTC regulation, at least one state has threatened action against the University ...

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