Safe Harbor for Prediction Markets in SAFE Port Act
Tom W. Bell October 5th, 2006
Congress recently passed a law, the Unlawful Internet Gambling Enforcement Act of 2006, that aims to restrict access to certain forms of online gaming. It has not, contrary to some reports, been passed into law. The House and Senate passed the UnInGEn-ious Act (as I style it) as subchapter IV of the SAFE Port Act, H.R. 4954, 109th Cong., 2nd Sess. (2006), which as yet lacks a presidential signature. Let’s assume that it will get one, though. What will the enactment of the SAFE Port Act, and thus of the UnInGEn-ious Act, portend for prediction markets? Nothing very scary.
[For further details, see the full post, available at Agoraphilia.]
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“Bottom line: The UnInGEn-ious Act does not expand U.S. law to outlaw prediction markets and offers a safe harbor expressly exempting properly structured prediction markets from the Act’s reach.”
Let’s hope Tom Bell is right.
From here, what should the (speculative side of the) prediction market industry do? Lobby the Treasury?
“It certainly seems that most prediction markets—even real money ones—establish payoffs in advance of any game or contest (i.e., you stand to win the face value of any certificates you hold at the expiry of trading in the associated claim), and those payoffs are not determined by the number of participants or the fees they’ve paid. That takes care of section 5362(1)(E)(ix)(I).”
I unfortunately have to disagree here. Payoff formulas may be determined in advance, but not the payoffs themselves. If you want to buy a contract/certificate and there is no-one offering it, you can’t trade. The final payoffs will be roughly proportional to the number of participants, and as the price moves over the lifetime of the contract, the payoffs change.
I think we will have a much easier time with the “subject to chance” argument.
If the Unlawful Internet Gambling Enforcement Act does not apply to TradeSports / InTrade, then that it mean that U.S.-based real-money prediction exchanges are legal?
Why would it be OK for an Irish exchange and not for an American one? It’s not fair.