Earlier this month, the Commodity Futures Trading Commission (“CFTC”) and Major League Baseball (“MLB”) entered into a Memorandum of Understanding (“MOU”) establishing a formal framework for cooperation, information sharing, and coordination on matters affecting the integrity of the prediction markets related to professional baseball. The MOU does not create any legally binding obligations or enforceable rights, but it is notable as the first formal bilateral arrangement between a federal market regulator and a major professional sports league. The MOU addresses the intersection of derivatives trading and athletic competition. The CFTC exercises authority to protect market participants from fraud, manipulation, and other abuses, while MLB seeks to protect the integrity of and public confidence in the sport.
At an operational level, the CFTC and MLB have designated representatives to meet regularly to discuss issues impacting the integrity of professional baseball and related prediction markets, and share information. The CFTC may only use MLB-sourced information in connection with its statutory responsibilities, while MLB may only use CFTC-sourced information to protect the integrity and public confidence in professional baseball.
The practical implications are worth noting. The MOU may suggest that the CFTC views sports-related prediction market integrity as a component of its regulatory mission. Participants in prediction markets listing baseball event contracts should expect that the CFTC now has a materially enhanced information pipeline on game integrity issues, with the ability to cross-reference trading patterns against MLB’s internal investigations on a near real-time basis. Other leagues and exchanges may soon take note and take similar action to preserve the integrity of their respective products. Read the CFTC and MLB’s press release.