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My short thoughts on the CFTC announcement:
- Nothing new..
- No good. Sports prediction markets won’t be allowed by the CFTC (no matter), and, thus, the US-based event derivative exchanges will never be profitable. (Remember that HedgeStreet V1 went into bankruptcy, even though they were well funded.)
- Going forward, we are going to see an opposition between people (like me) who favor prediction markets on all topics (including sports), and people who want the term “prediction markets” to define the socially valuable event derivative markets, only.
- Speaking of differences of opinion, I was agreeably surprised by the liberalism of Joyce Berg of the Iowa Electronic Markets. “She said some guidance is definitely needed to make a distinction between these markets and gambling, but doesn’t want to see such markets regulated out of existence.” Great. Deep respect for Joyce Berg, after that.
- Interesting people to listen to, with attention, in the coming weeks: Tom W Bell (who opposed CFTC regulation from the start), on one hand, and, on the other hand, Koleman Strumpf and Steve Levitt (who are both libertarian when it comes to gambling and betting). Event derivative trader Caveat Bettor will also be someone whom we expect comments from. [UPDATE: I forgot to add BetFair's Mark Davies in the list, and some others.]
- Developing…
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UPDATE: See David Pennock’s comment, just below…
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My rebuttals:
1. To the contrary, IMO this is a major step forward. The link is to one official’s commentary. The current CFTC release seems to reflect a real readiness to listen to all reasonable arguments and move forward.
2. Remains to be seen — at least this way companies can innovate.
3. You’re ignoring the pragmatists. There are many people (like me) who would like to see all forms of gambling legalized in the US, however from a realistic point of view, I’d prefer to see some markets legalized rather than none.
4-6. Agreed
@David Pennock: Thanks for your comment. I’ll put a note in the post.
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1. It’s nothing new. The CFTC will just formalize the current status quo.
2. We are prisoner of the CFTC regulations and the US Congress’ distaste of sports “gambling”. As for the profitability of prediction exchanges in that strict environment, I don’t see how you can deny that HedgeStreet went bankrupt even though it was well funded. Isn’t that a hard fact?
3. You’re right, but all “pragmatists” should follow a business plan and make profits. See point #2. Pragmatists won’t make miracles.
@David Pennock: My rebuttal of your rebuttal is here:
http://www.midasoracle.org/200.....he-ground/
While I agree that the CFTC announcement language can be positively construed, I tend to be a little skeptical of actual policy producing more fruit than weeds. Unintended consequences seems par, even for the noblest of intentions and most eruditely written legislation.
Wherever possible, I believe in self-regulating organizations that draw on Coase.
@caveat bettor: Thanks, Cav.