There has been a lot of discussion and debate surrounding Major League Baseball's decision to enter the prediction market space by signing a deal with Polymarket. This is especially true for a sport with a long and dark history when it comes to gambling, dating back to the Black Sox game-fixing scandal during the 1919 World Series.

Horrible Past

Polymarket was designated by MLB on Thursday as the league's official prediction market exchange (online sites where users place bets on the results of future events). Major League Soccer's multi-year agreement with Polymarket was announced in January, while Polymarket and Kalshi's multi-year agreement with the National Hockey League was announced in October of last year. MLB is the most recent in a series of agreements involving professional sports leagues and prediction market firms.

The question of whether prediction markets are lawful is still hotly debated, though. Sports event contracts offered through prediction markets have been the target of an ongoing information war waged by the American Gaming Association, which works for the regulated sports betting sector. Prediction markets ought to be governed similarly to other legitimate, state-regulated sports betting, according to the AGA.

MLB-CFTC Agreement

Businesses such as Polymarket claim that the financial products they sell are subject to Commodity Futures Trading Commission (CFTC) regulation. According to a survey conducted by the American Gambling Association in September of last year, 85% of Americans thought that contracts for sporting events were gambling, while only 6% thought they were more like financial instruments.

As part of the agreement, Polymarkets will use Sportradar data for its baseball markets and MLB marks and logos on its site. Establishing an integrity framework and collaborating to limit markets that provide integrity risks, such as individual pitches, management choices, and umpire performance, is a crucial part of the collaboration.

Legality Discussion

Additionally, as prediction markets continue to expand and change, MLB and the CFTC signed an agreement centered on the confidential sharing of information. This is all part of preventing threats to the integrity of the game, guaranteeing prompt response to crises, and anticipating developing trends.

This has sparked a wide range of reactions and opinions: is it too hazardous or wise, is there a muddy boundary between betting and investing, is it increasing fan interaction for the modern era, incorporates cryptocurrency (as that's what people use to bet on Polymarket), or uses the CFTC to keep things clean?

Doug Mishkin, a former NFL lawyer and current partner at the Manhattan legal firm BCLP, has the best viewpoint on this. Following the 2018 verdict that legalized sports gambling statewide, Mishkin served as the principal lawyer for the NFL's major gambling arrangements, negotiating and drafting the contracts and working on important sports betting initiatives.

Pro Sports Leagues and Prediction Markets

“At this point, with sports prediction market platforms enjoying widespread popularity among sports fans, it’s not irrational for leagues to conclude that their best option is to exert whatever control they still can via contractual partnerships – while naturally benefitting financially as well,” he said.

"But sports leagues and teams have not historically been immersed in the Commodities Exchange Act, which passed in 1936 – whereas with sports betting in the U.S., the leagues were actively engaged with state regulators at the outset, to help shape new state-by-state sports betting legislation. So this is new territory from that standpoint, and I expect there will be a learning curve on all sides to determine the most responsible, effective way to approach these partnerships.”

Integrity Issues

There is language in the MLB-Polymarket agreement that nullifies the collaboration in the event that judges determine that prediction markets are illegal under state law. The legality of prediction markets is now being discussed nationwide. The matter is now being litigated in a number of U.S. states.

“The concept of addressing legal contingencies in a contract isn’t novel – there are parallels to the daily fantasy sports industry around 2015, when leagues and teams were establishing official sponsorships, despite attorney general allegations around the country that DFS constituted illegal gambling,” said Mishkin.

Stakes Are High

“But DFS was operating on a state-by-state basis, undertaking individual analyses based on each state’s respective gambling laws. If courts ruled against DFS, the operator could simply exit the state. But prediction market platforms are operating nationwide, on the basis that they are governed by federal law – not state law – and have argued in court that it would be impractical and unduly burdensome to geo-fence individual states. On that basis, the stakes are arguably higher.”

Given baseball's history with gambling and the hazy boundary between prediction markets and gambling, people's worries about integrity issues are understandable.

MLB Season Opens This Week

“The reaction of ‘How could leagues be partnering with platforms offering what is effectively sports betting without a license?’ is understandable,” said Mishkin. “Because even though the platforms at issue here are not unregulated, they are operating outside of the regulatory framework that sports leagues and teams worked hard to help shape – a dynamic which, on its face, raises concerns.

"But if leagues can effectively harness their leverage to secure contractual commitments to help address those concerns, and shape new federal regulations that would govern sports prediction markets – perhaps even in ways that are more robust and effective than what’s available under individual state laws – there could be an opportunity here to meaningfully improve the overall U.S. sports betting regulatory framework.”