Prominent Sports Law Professor Predicts Leagues Will Act As Betting Exchange Operators In Near Future

For the quarter century-plus from 1992 until May 2018, the four prominent U.S.-based professional sports leagues plus the NCAA acted as the legal bulwark against the expansion of legal sports betting outside Nevada. 

Things changed when the Supreme Court announced its decision in Murphy v NCAA, which opened the floodgates for the legalization of sports wagering nationwide. Senators and congressmen across the country heeded the call, and the leagues, well, they played ball. This began with Major League Baseball and the National Basketball Association announcing a first wave of authorized gaming operators, which are effectively licensing and sponsorship agreements with certain sportsbooks. 

Things may soon go much further.

In the wake of the latest mutation within the DNA of U.S. sports betting – the apparent legality of Commodities Futures Trading Commission (CFTC)-regulated sports events contracts offered on platforms like Crypto.com and now Kalshi – it is possible that sports leagues themselves will operate platforms where sports contracts, or bets, are exchanged.

“If CFTC-regulated sports exchanges become a reality, the sports leagues themselves will swiftly move to operate such exchanges,” predicts Ryan Rodenberg, a professor at Florida State University who has followed the Kalshi-CFTC litigation closely. “By doing so, the leagues will be direct competitors in the space, and will try to put certain sports betting operators out of business.”

A new era indeed

Before going further, here is a quick synopsis of the current landscape around financial exchanges and prediction markets: Back in the fall of 2024, Kalshi won a hard-fought battle against the CFTC, arguing that the agency had no authority to prohibit trading on political markets/events such as who would win the U.S. presidential election. A district court sided with Kalshi, ruling that the events did not “involve” either gaming or unlawful activity, and so Kalshi proceeded to offer political markets. The CFTC appealed to the D.C. Circuit and oral argument was held on Jan. 17. 

While this has played out, Crypto.com and more recently Kalshi have pushed the envelope, allowing trading on a variety of sporting events such as the NFL conference championships, the Super Bowl, the NBA title, and who will be in the next head coach of the New Orleans Saints, for example. In addition, the new Trump administration has installed Caroline Pham as the new CFTC interim chief, replacing Rostin Behnam who resigned on Jan. 7 after seven years at the agency. 

Rodenberg explained that the CFTC now has three options with respect to sports trades. 

“First, it can do nothing and allow operators to ‘self certify’ sports-related trading options. Second, it could explicitly approve sports trades via a no-action letter or otherwise; and third, it could order wannabe operators to cease any sports offerings while the CFTC undertakes a review,” said Rodenberg.

Rodenberg noted that in conjunction with the above, the CFTC could also drop its appeal of the September ruling that allowed Kalshi to proceed with offering trading on political markets. 

Considering that the Trump administration is pushing an agenda centered on deregulation, favoring cryptocurrency, and also that Donald Trump Jr. was recently named a strategic advisor to Kalshi, it seems like a safe bet that the CFTC will stake out a position that probably will not impede Kalshi. 

If that’s where the chips fall after the legal process plays out, with the derivatives markets for sports events contracts gaining firm footing, that terrain would be fertile for the sports leagues to make their play and make good on Rodenberg’s prediction. 

“Running a betting exchange is an entry point for sports leagues who can charge commissions on every transaction, while not having a pecuniary position in the underlying outcomes like a traditional sportsbook where bets are made against the house,” he said.

The academic and lawyer highlights an important characteristic about exchanges that make a viable and potentially attractive option for them. Irrespective of the outcome of any event (or game, or prop bet), the exchange platform will take its cut. That means there is no vested interest in the outcome, and thus theoretically no integrity concern. 

Also undergirding Rodenberg’s theory is the historical position of some of the pro leagues, which have always to some extent posited that the sports wagering industry was unfairly benefiting off the backs of their product, without providing any benefit to the leagues in return except, and if anything, negative attention or integrity risk. 

“For decades in a variety of court cases and congressional testimony, various sports leagues have posited a proprietary right in the underlying athletic events,” Rodenberg said. “As such, certain sports leagues view sportsbooks as competitors for tethered revenue streams and will move to eliminate those who refuse to pay the leagues for the ‘right’ to offer sports betting options on exchanges or otherwise.” 

Rodenberg is referencing the leagues’ sale of “official league data,” or statistics concerning games/events results that the league has licensed and certified. While the data for the most part is available or accessible in the public domain, the version furnished by the leagues and their partners for some sportsbooks is generally faster and more desirable. And the more outfits buying that data, the better, for the leagues.

“There is no longer any statutory prohibition of sports leagues making money directly from sports betting,” Rodenberg added.

A raised eyebrow

There is one additional curiosity, for now, in the footnotes of Kalshi’s self-certification filing. It is the footnote to this contract: “The “Will win ?” relating to American sports leagues.”

1- The Contract has not been endorsed by the National Football League, the National Hockey  League, the National Basketball Association, or the National Collegiate Athletic Association.  The use of the terms National Football League, National Hockey League, National  Basketball Association, or National Collegiate Athletic Association does not indicate an endorsement of this product.

Why include this? What conversations with the leagues, if any, may have precipitated this? 

It may be totally innocuous. But it may reveal something more that Kalshi or the leagues may not be wanting to fully reveal yet. 

“I doubt Kalshi seeked to get pre-approval from the Senate Pro Tempore and Speaker of the House before Kalshi sought to offer markets involving control of Congress,” said Rodenberg. “As such, perhaps there is some strategic reason Kalshi added the first footnote in its sports-specific filing to the CFTC that will be revealed later.”