CME Plans to Launch Sports Contracts to Compete With Kalshi
(Bloomberg) -- CME Group Inc. is planning to debut financial contracts tied to both sports games and economic indicators by the end of the year, according to people familiar with the matter.
The products would bring the Chicago-based CME into more direct competition with Kalshi and Polymarket, the two platforms for so-called prediction markets that have been making rapid moves into the financial mainstream with the support of Donald Trump Jr., who is an adviser to both companies.
CME is preparing to release its new contracts to the public through futures commission merchants, including the one it is setting up with FanDuel, a part of Flutter Entertainment. But CME could also offer them on other similar platforms, opening it up to traditional retail investing brokerages, according to the people, who declined to be identified because the plans are still private.
A CME representative declined to comment on the plans, which could still change.
Shares in DraftKings Inc., a competitor of FanDuel, fell as much as 3.8% in postmarket trading after Bloomberg reported the plans. The shares pared losses and were trading down around 1.3%.
A partnership with FanDuel, to offer products tied to economic indicators, was announced earlier this year, but the timing and the details of the new offering were unclear. At the time, CME’s chief executive officer Terry Duffy left open the possibility of sports being added down the line.
“I will list them if they would like me to. I am operationally ready to do so on day one,” he said of FanDuel in an August interview with Bloomberg. “For now, I still think they are trying to make a decision on how they want to proceed.”
It could be tricky for FanDuel to offer CME event contracts because some state gaming regulators have signaled that they will not allow the gambling companies they oversee to also offer federally regulated event contracts.
“As we work with CME Group to develop our offering, we are continuing to prioritize active conversations with a variety of stakeholders including state regulators and have made no decisions as we maintain an open dialogue in an evolving legal and regulatory landscape,” a spokesperson for FanDuel said in an emailed statement on Thursday.
Regulatory Battles
As recently as last year, prediction markets were a fringe phenomenon that still faced significant regulatory opposition. Kalshi managed to break through by winning a court battle with the CFTC last fall that allowed it to open up betting on the 2024 presidential election.
Since then, Kalshi and other companies have used their federal financial licenses to begin offering sports betting nationwide, despite the pushback from gambling regulators in several states and significant legal uncertainty around issues like market manipulation and insider trading.
Polymarket, the largest prediction market, has faced regulatory scrutiny in the past and is not open to US customers. But it acquired a CFTC-regulated exchange earlier this year and the owner of the New York Stock Exchange, Intercontinental Exchange Inc., announced last week that it was investing $2 billion for a 25% stake in the startup.
Kalshi has recently expanded its offerings to include parlays, which have been a key profit driver for gambling companies by allowing customers to place low odds bets on multiple different outcomes. The CME is not currently planning to offer parlays, people familiar with the matter said.
The CME contracts should be able to move forward quickly because its license from the Commodity Futures Trading Commission allows it to certify its own contracts without explicit approval from the regulator. It’s unclear if the CME will have to wait for the government shutdown to end before it can self-certify the new product offerings.
The sports contracts were not included in filings that CME made this week with the CFTC detailing some of the event contracts it plans to launch that will be tied to stock indexes and the price of cryptocurrencies like Bitcoin.
(Updates with DraftKings share move in fourth paragraph.)
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