Hearings to examine betting, focusing on protecting sports integrity in America.

Good morning. Welcome to everyone. Senator Hickenlooper is close at hand, so we are going to go ahead and begin so that we stay on time this morning. And I want to welcome each of you for being here today, and thank you. Uh, h This is a hearing that we have wanted to get to. And it is an important hearing. I've heard about this issue quite a bit. In Tennessee, whether it's Saturdays in Neyland Stadium, to nights at the Bridgestone Arena watching the Predators, Tennesseans, and I think I can include all Americans in this, love their sports. They love cheering. for their teams. Sports bring our families together, they unite people, they teach young people about teamwork, discipline, sacrifice and fair play. And American sports are not just this nation's pastime, they're a global symbol of competition watched by hundreds of millions of people around the globe. When Americans watch their favorite sports team, they don't want to worry about the game being rigged. They don't want to worry that their favorite player missed a free throw to make an extra buck on the side. Unfortunately though, there have recently been some high profile examples of match fixing at the NBA and MLB. What this does is to challenge Americans' trust in the integrity of sports. And this has all been inflamed by the rapid explosion of legal sports betting across our entire country. What was once limited to a handful of locations is now available in almost every single corner of the country. It is carried with you night and day. It is right there on your mobile device. Americans can now place bets instantly during games, on individual plays, on college athletes, and it is all done with a single touch of the screen. And the introduction of sports event contracts on prediction markets has exposed more people to sports betting. While prediction markets represent financial innovation across many sectors, there are real concerns if they function much like traditional sports betting without the enforcement of state regulators and attorneys general. While sports betting is often a source of entertainment for responsible adults, it does have its risk. Like I mentioned, we have seen scandals involving professional athletes, referees, and suspicious betting activity. College athletes are reporting harassment and threats from angry bettors. And Americans, including young people, are being inundated with advertisements on social media. Their favorite influencers and sports figures are introducing minors to betting. Our young men are in crisis with over one-third of boys between the ages of eleven and seventeen, admitting to gambling last year. Sixty percent of those who have been gambling and have seen this gambling content online said they had it surface through their social media algorithms. It was served up to them. They didn't search for it. This is not safe. It needs to stop. And advertising to minors is disgusting. As we look to protecting the integrity of American sports and protecting the most vulnerable, like our young people, and those with addiction risk. It will take all of us working in good faith from state regulators like Miss Thomas, who is with us today, the integrity monitors, and the prediction markets and online sports books. So, we're going to dive into this hearing today. It is one that we have worked to assemble. We have grate- we're very grateful. to our witnesses for joining us as we begin to build our um book of work around this topic. And at this time, I turn to the ranking member for his opening statement.

Thank you, Madam Chair. It's been a pleasure working with you on this issue and others. Um, and looking at the, as you described it, the inappropriate regulated betting markets, spec- specif- specifically, and uh particularly the Recent explosion of prediction markets, uh, post every day. I come at this from a different point of view, but I share your frustration. The, you know, I don't talk about this all the time, but my father got sick when I was, when I was five years old and died when I was eight. I was my mother's second husband who passed away, so I was, uh, I, I was the youngest of four kids and I didn't do very well in those early years. And I was vulnerable in, in elementary school but specially in middle school and and high school where i i had real challenges and i wasn't equipped to handle them i wasn't ready uh if i had been faced with this landscape i was impulsive i kind of was attracted like many people to gambling and to to to chance i believe there was a beam of light coming down from heaven that was touching me uh we gotta get this right Um, twenty four seven access to online sports betting has increased these risks, uh, to consumers in in a manner that, I think, far outweighs the traditional brick and mortar gambling facilities. Um, this is especially true in the prediction markets. Sports betting makes up forty percent of the trades on Polari market and a staggering ninety percent on Koshy. Online sportsbooks like Fan Duels and DraftKings have started their own prediction markets to, uh, in some way bypass or uh negotiate s- state laws. Prediction markets have been the headliners recently for permitting government officials to inside information, to place bets on events relating to the death of Iranian leader Khomeini uh the abduction of President Maduro um these are clear risks to our national security when there's inside information being leaked out. Uh, this shouldn't be happening. Um, we've introduced the the bets-off. act to ban wagering on government actions on war terrorism and assassinations by people with inside information similar inside trading issues exist in sports betting prediction markets is there a a bet on a specific player's actions are they gonna miss that foul shot is that somehow gonna be a way to make a a a quick ten bucks on on a wager that's nuts that's nuts the very fact that we're we're betting on that which is clearly a should be a a random outside event, the fact that peop so many people, especially young people, especially young men, are wagering this, there's gotta be a real concern. Uh, prediction markets claim that they're sports event contracts which pose the same risk to consumers as online sports betting. They say that they're investments and not subject to state or tribal gambling laws. Uh, the the CFTC, you know, if if that if they're not subject to those laws, then they are the regulator is the commodity futures trading commission. But the CFTC has literally no experience in regulating sports betting, even worse, CFTC has failed to use the authority it does have to protect sports bettors from insider training, market manipulation, predatory advertising, and financial instability. This workaround is merely a way for prediction markets to skirt state consumer protection laws. I think prediction markets fail to protect young people who are particularly vulnerable to gambling addiction. We have a lot of young men especially that are vulnerable to this, and we're doing nothing. Gambling addiction is that the additional risk of being a silent illness, unlike alcohol and drug addiction, the financial and psychological harms that come with gambling addiction are hard to see. And gamblers unlikely rarely share when they've lost. But of course, when they've won, they're telling all their friends. So there's that sense that gets translated in our our virulent social media that it's great, that it's positive, it's gonna be a good thing. Many states, including my home state of Colorado, prohibit sportsbooks from advertising to minors under twenty one, restrict advertising to those who are already struggling with gambling addiction. However, the CFTC does not currently apply the same protections to prediction markets. Uh, one study found that between two thousand eighteen and two thousand twenty three, the amount of money that people spent on gambling, on sports gambling, rose while their net investments fell f- nearly fourteen percent. In other words, they don't have the money to invest. because they're spending it on gambling. That's the inescapable reality of that. Um, to really bring this home, I'll share that, you know, back in the the days of my restaurant owner days, we had a a bartender and a and a waiter, a wait staff member, and and she and he fell in love. It was a for the whole restaurant, a a wonderful moment. They were gonna get married. And he decided he wanted a bigger down payment for the house they were gonna buy together with their with their monies being commingled. Um, sure enough, he lost everything. Their relationship, their love, their marriage, their future marriage was destroyed. Uh, that's, when you see that firsthand, how in an instant someone's life can be damaged probably forever, uh, you see the seriousness of this, and that's one story that I saw personally. This has been happening by the thousands, the hundreds of thousands. I mean, I'm not saying, and I'm a supporter, it's a victimless crime, I'm not sure we I was not in favor of sending people to prison for gambling. But to let the the hounds of hell, the the the incredible power of mass marketing and social media, to let that untethered uh prey on our young people, I think is unconscionable and I think it's irresponsible. I yield back to the chair.

Uh, thanks, the ranking member. I know that Chairman Cruz and uh ranking member cantwell had wanted to make statements today and we will insert them when they're able to get here i do have two letters to submit for the record um and will ask to do so um senator cortez masto had a statement she wanted to make for the record and then the scc

cortez

that is in southeast The best conference. Good to hear.

Yes.

Uh, by the way, go Vols. Uh, they have a letter they wanted to submit for the record. OK, our witnesses today, our first witness is Mister Bill Miller, President and Chief Executive Officer of the American Gaming Association. He's led the AGA for seven years and over that time the organization has experienced expensive growth of sports gambling in the US. Our second witness is Mibeth Thomas, who serves as the Executive Director of the Tennessee Sports Wagering Council. She is an experienced gaming regulator and lawyer who works closely with other state regulators to strengthen consumer protections. On legal gambling she is also a native and I have known her since she was three years old. She is really a great regulator. Our third witness is Mister Scott Sadeen. He is the Co-founder and Chief Executive Officer at Integrity Compliance three sixty. With a background in financial market compliance, he created one of the leading sports integrity monitoring firms in the United States and I thank you for your time yesterday. Our fourth witness is my good friend, former Congressman Patrick McHenry, who I think was the best deputy chief deputy whip that the house ever had, because I was one of those uh deputy whips. He is currently serving as the senior advisor for the coalition for prediction markets. During his twenty years in the house of representatives, Congressman McHenry served on the house financial services committee for many years including as chairman and we welcome him back to capitol hill our final witness today doctor harry levant doctor levant is an internationally certified gambling counselor and currently serves as director of gambling policy at the public health advocacy institute he is also a recovering gambling addict himself and advocates for policies he believes will help more addicts recover and avoid relapsing. I want to welcome each of you. At this point, we will begin your time for testimony. Each of you will have five minutes, and then we will begin our rounds of uh questioning. Mister Miller, you're recognized for five minutes.

Uh, thank you, Madam Chairman. Uh, Uh, Chairman Blackburn, Cruz, Ranking Members Hickenlooper, uh, and Cantwell, members of the subcommittee, uh, thank you for the opportunity to be here today on behalf of the legal, state, and tribal regulated gaming industry. One of the most highly regulated industries in the United States. We are an essential part of the American economy. The legal gaming industry supports one point eight million American jobs. We have more than a thousand casinos, tribal and commercial, across forty-two states. suppliers, manufacturers, and sports betting. Our industry has created economic vitality in areas left behind by other industries. We generate more than a hundred billion dollars in employee wages. We deliver eighteen billion dollars annually in state and local taxes to fund critically important community projects like education, infrastructure, and public service. The legal gaming industry, our regulators, and sports leagues are aligned. on our shared mission to protect sports integrity. Together, the industry monitors, flags, and reports suspicious activities and threats to that integrity. Since PASPA was reversed in twenty eighteen, forty states and the District of Columbia have thoroughly worked to build sports betting frameworks centered around integrity, consumer protection, responsible gaming, and accountability. Other states, like Utah, Texas, and Georgia, have chosen not to legalize sports betting. Yet there continues to be a robust offshore illegal market that provides consumers no protections while receiving about seven hundred billion dollars in American bets. And now, gaming integrity frameworks are being undermined by so-called prediction markets who are evading state, local, and tribal authorities. The legal, state, and tribal regulated gaming market has proven safeguards. more than eighty-four hundred state and tribal regulators who oversee our industry. Licensed sportsbooks operate under strict rules regarding age verification, AML compliance, geolocation, integrity monitoring, responsible gaming, advertising standards, and flagging suspicious activity. Prediction markets? They don't comply with most of these important regulatory protections, and they allow eighteen year old teenagers to bet on sports. And although a vast majority of their business is in the sports base, uh, prediction markets have also drawn attention for offering death markets and other odious bets that threaten our national security. We marketed ourselves accurately. We're part of the entertainment economy. These so-called prediction markets are deceptively calling sports betting financial contracts and investing. Despite messaging designed to beguile policymakers and the public, they are increasingly being exposed as backdoor sports betting operations. We know it, they know it, and the American people know it. As Senator uh Hickenlooper said, now they're nearly ninety percent of Cal State's wagers revolve around sports betting. They advertise it themselves, sports betting legal in all fifty states. A bipartisan coalition of forty-one state attorneys general agree, so-called sports events contracts are actually sports betting, and the states must regulate them. We believe that prediction markets are evading state and tribal authorities, and it has cost those states and tribal authorities close to a billion dollars in lost tax revenue that would otherwise go to social services. In closing, so-called prediction market platforms jeopardize the integrity of sports. States, tribes, regulators, leagues, and operators are working together to improve consumer protections, to reinforce responsible gaming, Our our process protects the integrity of sports. Why the prediction markets don't wanna play by these rules? It's for them to explain. The CFTC was created to regulate markets critical to the functioning of the nation's economy, not to regulate Monday night football. In twenty twenty four, Kalshi stated this in federal court. As the legislative history directly confirms, Congress did not want sports betting to be conducted on derivative markets. And just a few months later, they were offering an overwhelming menu of sports bets, from the NFL playoffs to the Super Bowl to March Madness. Prediction markets aided by a rogue CFTC are making a mockery of congressional intent. The prediction markets are running national sportsbooks, and it's time to hold them accountable in the same way we are. Thank you for having us here today, and look forward to our conversation.

Miss Thomas, you're recognized for five minutes.

Chairman Blackburn, Ranking Member Hickenlooper, and members of the subcommittee, it is an honor to be here today, especially in front of my US Senator. Thank you for the opportunity to speak on the Tennessee Sports Gaming Act and the priorities in place that we have to protect consumers and to um regulate previously unlicensed sports wagering activity through formal oversight. In Tennessee, it is a taxable privilege to offer sports wagering pursuant to the license issued by our council. Since sports betting went live in twenty twenty, Tennessee has collected close to four hundred and fifty million dollars in privilege taxes from licensed sportsbooks, with five percent of that, or close to twenty-three million dollars, dedicated to problem gambling prevention and treatment. Tennessee recognizes that gambling is risky and can become problematic. for some players if the right procedures are not enforced. To that end, our law prohibits individuals under the age of twenty-one from wagering. It requires sportsbooks to make available and enforce exclusionary measures for those who do not wish to access gaming platforms or receive marketing materials. In support of this requirement, our state agency manages a statewide self-exclusion program to ensure communication of these exclusions across every licensed sportsbook in our state, no matter where the exclusion originated. Our law prohibits credit card deposits and the extension of credit, and requires sportsbooks to provide the ability for players to set limits on time and money deposited. After all, sports betting in Tennessee is viewed as a form of entertainment for adults, not a way for college kids to pay the rent. Importantly, our law respects the concerns of teams, schools, leagues, and players about particularly risky wagering markets by prohibiting individual live team prop bets for any college sport, and any types of wagers on injuries or penalties. Our law also allows teams, leagues, and schools to prohibit other types of wagering markets that may, excuse me, to ask the council to prohibit other types of wagering markets that may be contrary to the public interest, uh, or that could impact, uh, the integrity of a particular sport. Sportsbooks are required and they do cooperate with investigations by our sports governing bodies, and law enforcement. And also, importantly, our agency is empowered under our law to investigate and fine unlicensed sportsbooks who choose to operate in our state unregulated. Our council has promulgated extensive rules to further support our statute's consumer protections which we have strengthened over time as technology has advanced. Those include strong know your customer regulations, to identify players and prevent access by minors and other prohibited players secondary identity verification requirements to prevent identity theft and proxy betting, multifactor authentication requirements to prevent bad actors from taking over accounts robust geo-location checks at multiple points in time and access and required account suspension and reporting related to minors and prohibited players A sportsbook's internal controls, which we approve and regularly audit must have procedures to immediately notify our office of unusual or suspicious wagering activity and this reporting obligation goes far beyond money laundering or fraud it includes anything that could indicate match fixing event manipulation, or the misuse of inside information. In many ways our sportsbooks do act as the first line of defense, but you cannot describe their reporting as self-certification. As state regulators, we proactively identify and work to correct gaps in sportsbook compliance with multiple checks during the term of their licensure. We review all material technological and operational changes, as well as all changes to house rules and terms and conditions prior to implementation. We require our sportsbooks to undergo annual third-party operational and security assessments that are reported directly to us for review. Sportsbooks are also required to perform their own internal audit and report findings and remedial measures to us. We audit compliance with financial requirements and player facing technical components as well as wagering catalogs to see whether impermissible markets are being offered. We review incident reports related to operational issues which helps us not only insure compliance but helps keep us up to date on issues that we might hear from a player because we also serve as the resource. for the resolution of all player complaints in Tennessee. Although it may seem like there has been a growth of cases regarding athlete manipulation or information sharing, my experience has been that legal and regulated sports betting has greatly increased the volume of data available, which has led to a higher number of incidents being reported and addressed. Any criminal behavior can be difficult to complete, completely prevent, but it can often be detected, investigated, and enforced. with the right tools in collaboration. Thank you very much.

Mister Saedin, recognized.

Thank you, Chairman Blackburn, ranking member, Hickenlooper, and members of the subcommittee. Thank you for the opportunity to appear before you today.

Great.

My name is Scott Saedin and I'm the Co-Founder and Co-CEO of Integrity Compliance three sixty, known as IC three sixty. We are a regulatory technology and compliance services firm. specializing in comprehensive integrity solutions for stakeholders across sports, sports betting, and prediction markets. We work closely with both collegiate and professional sports leagues, licensed sports betting option operators,

Of course.

prediction market exchanges, state regulators, and law enforcement across the United States and abroad. In these few minutes, I wanna highlight two core principles I believe about today's existing integrity monitoring ecosystem. First, the integrity infrastructure that protects American sport is not theoretical. Since the Supreme Court's twenty eighteen decision in Murphy versus the NCAA, a robust framework has developed across leagues, operators, regulators, law enforcement, and integrity providers like us. That framework has identified, investigated, and resolved a meaningful number of integrity matters, from suspicious wagering patterns to the misuse of insider information, to active match-fixing inquiries. The infrastructure exists and it has worked, but just like any vertical within a complex industry, the integrity ecosystem has room to improve and mature as the space around it develops and evolves. Second, the sports betting and prediction market ecosystems involve, as mentioned, a wide range of stakeholders. And I believe that no single participant can address its integrity challenges alone. The integrity of competition depends on the connective tissue between those participants. Quality of information sharing, the depth of collaboration, and the consistency of transparency. IC three sixty's mission is direct, to assist the successful maturation of the regulated sports betting and event contracts ecosystems through products and services that help protect the integrity of sport. We work closely with many of the stakeholders I have just mentioned. And that breadth of our partner network is in our view a precondition for credible integrity work. We regularly see the specific and of- often unique integrity challenges that each group is facing. That cross-participant visibility allows us to identify patterns, risks, and emerging vulnerabilities. And one of our central responsibilities is to bring those insights back to relevant partners who may have been impacted by a circumstance, assist in in investigating the issue, and then collaborate to mitigate any remaining areas of risk. In short, we endeavor every day to embody the very connective tissue necessary for cross-stakeholder integrity success. i'd like to highlight three lines of work that help us play that role the first is integrity monitoring our system and team of dedicated resources conduct twenty four hour a day surveillance of regulated markets for potentially suspicious activity we maintain a vast distribution network that allows operators to expeditiously disseminate and respond to circumstances of potential risk integrity alerts often come either from us or directly from an operator themselves this alerting structure forward stakeholders' holistic and actionable insight quickly and efficiently. I'd also like to highlight an IC three sixty product called ProAbet. Most sports leagues maintain a population of individuals, athletes, coaches, officials, and other personnel who should be prohibited from wagering on their own sport, because of regular access to inside information and the ability to exert undue influence. ProAbet is the secure infrastructure through which those designations move from governing body to sportsbook operators and prediction markets, allowing participating platforms to automatically permission accounts before a prohibited transaction ever takes place. In our experience, this level of proactivity is incredibly consequential in preserving market and competition integrity. Lastly, I wanna touch on the significance of education. The prohibited patron population I described in the context of Probet is also the population I believe most vulnerable to approach pressure, and targeting by bad actors. Their awareness regarding the threats they may face, the rules that apply to them, and the reporting pathways available when something feels wrong, are significant contributing factors in maintaining the integrity of sports. IC three sixty has delivered hundreds of presentations, and has reached hundreds of thousands of athletes, coaches, and administrators, and we look forward to continuing that work in close partnership with sports leagues. I'd like to close by reiterating the importance of collaboration, and the connective tissue between industry stakeholders. Integrity monitoring is only effective because operators report information, leagues share intelligence, and regulators share casework. ProAbet only works because governing bodies designate, operators screen, and the infrastructure between them is trusted. Education is only impactful because leagues and institutions invest the time and attention of the people closest to competition. The value we believe IC three sixty brings is helping to make the collaborative work of integrity possible at the scale and speed that the contemporary market requires. I appreciate the subcommittee's attention to these issues, and I welcome your questions and conversation. Thank you.

Congressman McHenry.

Uh, thank you, Chairman Blackburn, Ranking Mem- Member Hickenlooper, and uh distinguished members of the committee. Thank you for the opportunity to testify. Uh, and thank you for the warm welcome on this side of uh the capital complex for a lowly former house member. Um, I will say the the chambers are much nicer over here. Um, uh, I appear before you on behalf of the coalition for prediction markets, including US regulated companies like CalSheet, Crypto.com, Robinhood, Coinbase and Underdog. My experience as a former chair of the house financial services committee is grounded in financial markets regulation, market structure and market integrity, not in sports betting or traditional sports books. And that's the lens through which I will speak today. Uh, throughout my time in congress, I focused on policies that expanded and financial markets for average everyday americans uh democratized access to financial tools historically reserved for large financial institutions uh modernized our laws to foster innovation facilitate capital formation and strengthen confidence in market integrity my work with the coalition for prediction markets is a continuation of those same principles the question before us is not whether innovation should exist but whether emerging market-based products will operate inside a transparent, federally regulated onshore framework with robust consumer protections and oversight. Casinos and traditional online sportsbooks and prediction markets are fundamentally different products, governing uh governed by different legal frameworks and subject to different regulatory structures. And conflating the two does little to advance our sheer goal of protecting consumers. In a casino or sportsbook, the house sets the odds and profits when customers lose. In a prediction market exchange, participants trade with one another, while the platform earns transaction fees for facilitating the market. As a result, the incentives are fundamentally different. Prediction markets benefit from greater participation, liquidity, and more accurate information, not from consumers losing money. That distinction was recently reinforced by the third circuit court of appeals, which held that sports events contracts are governed by the Commodities Exchange Act, and the Dodd-Frank Act. It's also important to recognize that sports event contracts are only one part of a much broader market as categories like entertainment and politics uh grow, uh quickly and share. These products are a part of a broader trend toward democratizing access to financial and informational tools that were once limited to institutions and large market participants. Coalition members uh in coalition companies, share the league's interest in protecting sports integrity and want to work collaboratively to address concerns. And where appropriate, share information and data that help protect the ecosystem. Customers must trust uh uh must trust that suspicious activity will be identified and addressed appropriately. Unlike many sportsbooks and unregulated operators, coalition members do not offer micro-bets that are uh particularly vulnerable to manipulation such as wagers on the next pitch or the next play. Notably, the sports integrity scandals that have made headlines in recent days and recent, uh, recent years and recent days, uh, involving the NBA and, uh, MLB players, uh, using insider information and, uh, and compromised game outcomes, occurred on traditional online sportsbooks, not on prediction prediction markets exchanges. Coalition members are federally regulated and overseen by the CFTC and operate under extensive compliance obligations including real-time surveillance, trade reporting requirements, bank secrecy act compliance, know your customer, and anti-money laundering controls, and comprehensive rule book reviewed rule rule rule books reviewed by federal regulators. Uh, they have extensive monitoring that is ongoing, and regulated prediction markets prohibit trading, uh, not only by individuals with material public inform- non-public information, but also by anyone capable of influencing the outcome of a contract, including players, coaches, referees, league employees, and even members of congress on political contracts. Protections uh that frankly go well beyond uh federal security's laws, uh requirements, and beyond standards applied to traditional sportsbooks as well. Importantly, uh customers on our platforms are also subject to uniform federal protections that apply nationwide. Exceeding the consumer protections of consider casinos, which are governed by a patchwork of state laws. While not the focus of this hearing, coalition members also share concerns about contracts tied to war, assassination, and acts of violence, um, and those are proliferating in unregulated platforms. Uh, and we share the interest of uh that those are not in the public interest. These kinds of contracts are already prohibited under uh US law. And uh welcome your questions today on the ways that we can enhance uh market integrity, protect uh the integrity of sports and consumer protection writ large. Now you'll back.

Doctor LaVon.

Good morning. Chairman Blackburn, Ranking Member Hickenlooper, members of the subcommittee, thank you for the privilege of testifying today and the privilege of joining this panel of distinguished witnesses. Before I begin, take just a moment uh Chairman Blackburn and extend my thanks to you. Um, specifically it was uh December of twenty twenty four when I testified before the Senate Judiciary Committee. And following that hearing, you and I had a brief exchange in which you said to me, um, I am going to remain involved in this issue to protect children and families. You have been a person of your word. Uh, the people of Tennessee benefit from that, and frankly, the people and families of America benefit from you remaining involved in this important issue. I thank you for that. Uh, at during that same conversation, I was joined by uh s- senator durbin senator blumenthal and i believe senator tillis all expressing similar feelings this is not a republican issue or a democrat issue this is a human issue regarding an addiction crisis that needs to be addressed and prevented i am a gambling addict in recovery i made my last bet on april twenty seventh two thousand fourteen and survived a near suicide attempt that same night i made my first bet when i was fifteen years old and went to the casino for the first time when i was sixteen i never had a healthy relationship with gambling but it would take thirty years till i fully understood that it was in two thousand thirteen that my world was collapsing much like senator hickenlooper describes someone he knew and i reached for my drug of choice which was gambling and i annihilated myself and everything in my wake i went through all of my money all money i could borrow and eventually all money i could steal and on february thirteenth two thousand fifteen i stood in a courtroom in philadelphia pennsylvania not unusual for me since i've been a lawyer for almost twenty five years but on this day i stood in that courtroom as a defendant and i pled guilty to thirteen financial felonies all related to my gambling addiction and during my sentencing hearing i made a vow and that vow was if i could get well at that time it was a very big if but if i could get well i would dedicate whatever my future looks like to helping prevent, prevent being the operative word, other people, particularly young men, from suffering a similar fate. That led me, after four or five years of treatment, to LaSalle University in Philadelphia where I earned a master's in professional clinical counseling. And upon graduating, began treating people suffering with gambling addiction. But I realized I wasn't doing anything on the prevention side. So I'm back to school again, earned a doctorate in public policy where my research is all about how to address prevention. in the couple of minutes i have left i wanna address three issues and then look forward to a more robust conversation issue number one our prediction markets gambling most certainly yes when it comes to sports contracts and there's two simple reasons why first meets the very basic definition of gambling which is defined as betting or staking something of value with consciousness of risk and hope of gain on the outcome of a game contest or an uncertain event whose result may be determined by chance or accident. That's gambling. That's what prediction markets do. Next, to the end user, American public, there's absolutely no discernible difference. They are gambling. Um Most importantly, the prediction market companies themselves have acknowledged it is gambling. And I'll quote that later on. I wanna move forward though to integrity, an offer to this committee. a broader definition of integrity. Integrity isn't just can the American people trust the result of the Cubs Cardinals game. Each of us now have to make that decision for ourselves because sports have sold their integrity to the gambling industry. There's a much broader issue here, which is how the sports leagues, including the NCAA, the owners, the players, have partnered for enormous financial gain in the billions with the gambling industry and prediction markets to sell their real-time data to the gambling industry to create something called micro-betting and its close cousins, same game parlays and prop bets. This is what is crushing people and families, particularly young men. It is called micro-betting and I am here today to talk to you about it, because I'm also here to issue you a warning. If the Senate doesn't do something, if the Congress doesn't do something, our friends at the nfl have just in the last three months announced in partnership with their partners a company called genius sports the launch of a brand new product called bet vision which they describe and i quote as an immersive intelligent interactive tool to convert traditional fans into high engagement in play bettors which are significantly more profitable for genius and for our sports book partners They have their eyes on us and our children to convert into in-game micro-betters. It is fundamentally dangerous. I look forward to speaking in more detail about it. Thank you.

And thank you, and I don't think anyone would have made a bet that we would have had five witnesses who stuck to five minutes I congratulate you all, your recognized Chairman Cruz.

Well, I think that bet may have been on the prediction markets. Um, good morning. Americans love sports. Nearly seventy percent of Americans, that's about two hundred and thirty-two million people, consider themselves sports fans. I am certainly one of them. I'm a sports fan for the same reason everyone else is. Sports showcase human talent and grit and drive. They put us on the edge of our seats, As we wait and and hope for the thrill of the next big play, the come from behind win. From high school football, which is a religion in the great state of Texas, to college basketball, to the professional leagues, sports unite us at a time when it seems everything else divides us. Today, many sports fans are also sports bettors. Thirty-nine states and the of Columbia have legalized some form of sports betting. Though my home state of Texas has not. Even in those states where sports betting is legal, everyone agrees that it carries risks and serious risks. It should be regulated and it should be done, if at all, in moderation. This hearing is not about rolling back legalized gambling in states that have chosen to authorize it. There are two different questions instead before us at this hearing. First, in a world where sports betting exists, how do we preserve the integrity and authenticity of the sports that we love? And second, are prediction markets operating within the law? Or are they defying the law and improperly infringing on state sovereignty? And the first question. Integrity is the foundation of sports. We want athletes competing on merit. But the opportunity to make money can tempt gamblers and sometimes even athletes themselves to guarantee a sure bet. Consider a few recent cases. NBA players and coaches are accused of manipulating performance and providing insider information to win bets. Two Major League Baseball pitchers allegedly rigged their own pitches in exchange for money. MLS banned two players for intentionally getting yellow cards to win bets. And the UFC has canceled matches and terminated contracts because of suspected match fixing. These incidents sow doubt. in the minds of fans. It is not uncommon for fans scroll- scrolling Twitter on a Sunday afternoon in the fall to see posts speculating that a controversial call by an official was related to gambling. That is why sports leagues and casinos and regulators have to work together to identify, to investigate and to root out manipulation. Fans need to be assured that game rigging is rare, And that anyone caught doing it will be punished harshly, if not banned forever from the game. They're also grappling with a newcomer to the sports integrity matrix, prediction markets like Polymarket and Calchi. Prediction markets have started offering quote event contracts on sporting events, which for all intents and purposes are sports bets. Now, of course, there are real and serious questions about the legal propriety. At a minimum, any production market that offers event contracts on sports should be expected to join serious efforts to detect and prevent the rigging of sports. We must also acknowledge the existence of unregulated offshore sportsbooks that have existed for decades. That issue may well be one for law enforcement, treasury, or the State Department to solve. Today's hearing is designed to focus on the use of tools in the regulated market to catch and to prevent game manipulation. My hope is that today's discussion will showcase the work already underway to protect the integrity of sports and at the same time identifying where we can and should do more. I look forward to hearing from our witnesses.

Thank you, Mr. Chairman. We will begin our round of questioning. Now, Miss Thomas, I wanna come to you. Uh, when we speak about sports integrity, our states have really been on the front line when it comes to protecting fair play and also protecting consumers from harm. You talked about this. in your opening i know that tennessee has taken a technology first approach in dealing with this so i want you to talk a little bit about tennessee's approach and how you have handled or will handle potential instances when it comes to match fixing and questionable bets

Thank you for the question. Yes, um, we are a technology forward agency and recognize that we need to move uh at the speed of business and not always at the speed of government to keep up with our industry and mitigate all risks that we can and I described what our rules require, but um I wanna emphasize that our standard of what our sportsbooks and their vendors can use is one of commercial and technological reasonableness which, course evolves and improves over time. Um, that gives our sportsbooks flexibility to run their operations and use vendors that they believe are best suited for their needs or develop technology in-house. Uh, we also internally in our agency use technology to monitor what is going on with all of our sportsbooks. We ingest data from our sportsbooks, from our vendors, related to compliance issues, related to um any kind of technological changes any changes to any of their operating systems comes to our office and we also ingest data from players that uh gives us insight into issues that they are seeing and

so let me jump in you're taking vendor data and player data

and sportsbook data yes ma'am

and sportsbook ok

yes and then we're able to um use that data to look at patterns of what might be happening with compliance areas. Now, with integrity issues, that might, that may be a way that we identify integrity issues, but we also have back office access to all of our sportsbooks platforms, so we can see real-time account level data. We can also see their um integrity providers like IC three sixty and IBIA, we can see their And so we can see what's being reported by those sportsbooks in real time, and how others are responding. Um, we also have a platform access to geolocation data. So we can see wagering geolocation pings when deposits are made, when wagering activity takes place, when um odd movements happen or uh differences in geographical locations and wagers that are taking place. And that allows us to have a lot of data at our fingertips to analyze when there is suspected activity of match fixing or otherwise, that we can then package and send to sports governing bodies, send to law enforcement, and investigate. And we have done that. Um, I wanna make sure I get my numbers straight, but As of May fourteenth, we had investigated twenty-five potential integrity cases where suspicious wagering activity occurred in Tennessee that could have indicated the use of inside information. Um, a few of these cases are currently pending, but seventeen of these matters were closed and were referred to sports governing bodies and law enforcement including thirteen of those to the FBI. And where an integrity matter is not criminally referred, it is because we identified that it was just somebody had

Great.

a good day.

Thank you. Mister Miller, do your members advertise to youth?

uh we do not

do you advertise on social media platforms

uh we do have members that uh advertise on social media platforms yes

and you consider that is not advertising to youth

i i think that the algorithms that are built around the idea of

they don't build their algorithms and they don't open them mister mckenry do you do your members advertise to you

no and

do you advertise on social media platforms

yes

and we welcome the additional tools and uh as a parent i lodged your goals uh of protecting our kids online we want enhanced uh tools so we can make sure that

so why are you on those platforms

pardon me

why are they on those platforms

because they're very popular they're very popular platform

with kids

with the adults the average age

and we've got a problem with eleven year old

with adults

the average age of the participant or participant

ok let me ask you this

prediction markets is thirty three

i i wanna talk a little bit about the prediction market's approach to regulation and consumer protection And uh let's go to a linked-in post that Kalshi CEO Mansur wrote about the company taking a regulatory first approach, his term, to accelerate growth. And I agree that innovators need, like touch rules and prediction markets are a great place for innovation, we realize that. I think that it is important that we take action to make certain these marketplaces are going to be safe. So talk for a moment about how your association is approaching consumer protections and what you are going to do to be certain that you're not on these platforms where children are the primary user of these platforms.

Yes, and and thank you, and thank you for your leadership on protecting our kids online. I as a parent I share your goals. uh i very much share your goals uh our coalition members adhere to best practices on advertising there's a complete ban of anyone under eighteen from touching these products i we understand there's a conversation about the age requirements for prediction markets we welcome that conversation but to be clear these financial products just like securities are available to eighteen and older ninety seven percent of our users of the volume on prediction markets are over twenty one the average age is thirty three The goal is to get uh customers that will be repeat customers that are interested in in participating uh but not targeting kids. And every enhanced tool that we can take and our members' companies can take to ensure that under eighteen don't even see our advertising online is a very important mark that we take and undertake, but we lack fully the tools necessary to block that. Our member companies will take enhanced surveillance of those that they think maybe using their parent or someone else's phone. We take extra effort to make sure that they don't have that access, and we follow the best tools that are available to make sure that we know if anyone has any touchpoints to the leagues or uh the folks that we view as insiders, and they are they are banned from using our products. Full ban, they can't even trade, um and that is an undertaking that's very different than the rest of the ecosystem.

OK. Thank you for that. Miss, Doctor Levant, I can tell you want to respond to that, but as a courtesy to my colleagues, I'm going to call back come back to you for that response. Senator Hickenlooper, you're recognized.

Thank you, Madam Chair. Uh, thank all of you for coming. Um, and Doctor Levant, I uh, particularly think your life experience is relevant and real. Um, uh, Mister McHenry, and thank you for your service. you bring a reputation from the house but i think you need to be very careful of how you're using that i think prediction markets you know largely advertise themselves as financially life-changing tools for average people that can allow users to earn money through their prediction accuracy um now one example i can give you kalshi partnered with a young woman on tiktok who said so this is a partnership who said that she struggled to pay her rent. But by placing bets on Kalshi, she was she was able to win enough to cover her rent for two years. I know you're welcoming conversations, but do you think that's responsible? To hold that up as a model for people that are having trouble making their rent? That they should go on to prediction markets because they're gonna be better at predicting what is clearly a random occurrence?

these contracts are not fully random. um and these contracts are truly

uh uh they're not fully random but if if it's a truly if there's no inside information they are largely random

um the predictive capacity and the specificity of of the case you you raise i'm unaware of this is a two-sided

well i'm telling you you now you're aware of it and this isn't a case of

what what i don't

of some random person this is a a business partnership with the people that are paying your consulting fee

so thank you for i i will attempt to answer your question which is these are two-sided markets established by peer-to-peer

i get that i'm talking about what the the the incentive that advertising plays in in these types of of markets let's let's move on i i think uh i look at the age issue is every bit as important as encouraging people that are struggling to make ends meet um i think it's specifically uh dangerous for minors to get into uh sports betting and especially on prediction markets. That's why almost all the states say it's twenty-one, not eighteen, but twenty-one. Prediction markets let users as young as uh eighteen bet on sports uh but they also market their products to younger more vulnerable uh audiences who are in many cases adept at getting around the platform precautions uh there have been reports that Koshy is has been using young social media influencers as young as fifteen years old. to promote its platform to young consumers. Is that true?

Not to my awareness.

And and you wouldn't sanction that.

No.

Young fifteen year old influencers are saying why this is these prediction markets are are useful and a valuable investment of their the risk of their money.

I wouldn't condone anyone using TikTok, but that's a separate matter.

Yeah, um, let's put it this way. Does Koshy have any age restrictions at all on the influencers that it works with, basically hires, uh, in order to uh influence the uh the market that it it or the audience that it markets to.

I, they are one of the member companies for the prediction markets. I can direct you to them answering that specific question.

No, no, I'm talking about Kalshi. I'm not I don't wanna go through the rigmarole. I mean, you're saying we're open to the conversation. Why isn't these prediction markets, why isn't Kalshi out in front and picking out these issues and saying, all right, we're gonna deal with this and here's how we're gonna one, two, three, we just shouldn't

Well, they are, and our members are. These are onshore regulated by the CFTC, and they comply with federal law and the regulations. And they have they have complied with all the court cases.

Well, but the CFTC, we know, is inexperienced. doesn't have any real regulations around sports betting and they're look at miners.

They've been doing this for

They they're easily manipulable.

these contracts for a hundred years.

Um, I think we're the self-certification process is a good example. Uh, uh, the CFTC allows prediction markets to launch new contracts just one business day after filing them,

That is data practice for the CFTC con

without any CFT without any CFTC review at all.

No, no, the CFTC reviews those contracts.

Not one day they don't.

Yes, they do, a as they do for the rest of the commodities marketplace. And furthermore, the CFTC has regulatory authority to remove contracts or unwind contracts after the fact if they view that it was manipulated or there's fraudulent activity. The CFTC is a cop on the beat, has the capacity to uh oversee this market, just as they've done with the broader commodities marketplace that's been around and well-versed for for decades.

There is literally no one that I know, you're the first person who's told me you think that that they think the CFTC is up to the standards. Um,

Well, I would say I would say billions of dollars to the contract.

let me go, let me go last, mister Miller, uh no that's OK. It's okay, it's okay. Mister Miller, um, uh, you stated that uh regulated gambling benefits from the uh, from the revenues they collect on taxes from gaming. Um, Colorado co- collected forty-five million dollars last year. You go, it's it's in the billions o- over the last number of years, if you look at all the states and the tribes. Um, if prediction markets continue to operate as unlicensed sportsbooks, paying no taxes, is it gonna reduce the resources available? In Colorado we use that for uh uh water uh water projects and all kinds of outdoor recreation opportunities uh are those resources available to states like colorado gonna be diminished

uh well thank you for the question of of course uh we what we've seen is basically a tsunami uh that has been created by the prediction markets in a completely unregulated manner there's not one single person on this dais or anybody that was around during twenty ten when we did dodd-frank that believed that we were enabling and creating

Thank you. I yield to the sheriff.

Senator Curtis.

Thank you.

Thank you.

Um, Mister McHenry, I'm conflicted whether I call you chairman, a congressman, a speaker, uh, but I I will tell you it is a delight to see you again. and uh really enjoyed uh serving with you uh if i'm honest even a couple of months ago i would not have been able to tell you what a prediction market was and so could you help me just like in one sentence to the to the man or woman back in utah what is a prediction market just like in one sentence

it is an open exchange it is uh under commodities regulation called a swap you have folks that have a contract some say yes some say no and they determine it the marketplace the consumers and the participants determine what is the ratio on the contract the likelihood of something happening

and and what's exactly happening when a purchase uh event contract is is purchased just very very like for the people on the ground who don't understand the technicalities of this tell me exactly what's happening

the easiest thing for me to explain is in the political setting right in the political setting is uh john jane or joe going to win the election and after the election the contract is certified based off of information on whether or not that happened. And then people are paid out based off the ratio of that final contract.

OK, if if if I were hearing that back in Utah, I would say, um, uh, I I I think something might happen, I'm gonna put money down on it, and I have the the chance of either making more money or losing money on that. Is that is that accurate?

Yes. And it's an uncertain outcome, just like whether or not you're going to have a crop that comes in this fall,