Utah should not allow the federal government to gamble away federalism

• The U.S. Constitution recognizes the broad authority of states in areas like criminal law while limiting the power of the national government.
• Recently, the federal government has begun to assert authority over “prediction markets,” businesses that allow users to make money by predicting events, particularly the outcome of sporting events.
• This has the effect of disrupting traditional state authority to regulate gambling, running roughshod over the constitutional division of responsibilities.

​Our system of federalism, whereby the sovereign people assign some tasks to the national government and reserve the majority to the states, is one of the most striking and consequential features of the Constitution. It always seems to be in some peril because powerful centralizing forces see it as an obstacle to various pet projects. An unlikely one has arisen in Utah – the desire of some national agencies to get around the state’s gambling laws.

James Madison noted that under the U.S. Constitution, the national government was given “few and defined” powers while the states would have “numerous and indefinite powers.” Careful scholarship by Robert Natelson examined arguments about the powers of states at the time of ratification of the U.S. Constitution and concludes, among other things, that “[e]xtensive federal intervention in criminal law, for example, directly contradicts repeated Federalist assurances that, with few exceptions, criminal law would remain exclusively a state concern.”

Laws against gambling are a good example of the type of areas where states are free to regulate.

This system of assigning responsibilities to different levels of government has powerful benefits:

• It “assures a decentralized government that will be more sensitive to the diverse needs of a heterogeneous society,” and “it makes government more responsive.”
• It allows the decisions that most closely “concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State” to be made by the level of government closest to those affected.
• It allows laws to be tailored to the unique culture and contexts of the people in a region.
• It “allows for more innovation and experimentation in government.”
• It allows the state governments to protect their people from federal overreach.

Utah’s governor, attorney general, and legislature have recently spoken out about an attempted incursion on state responsibilities to promote a market in gambling.

The incursion comes from what are called “prediction markets,” which “allow participants to buy and sell contracts tied to the probable outcome of an event.”

Customers can wager on everything from whether it will rain in Los Angeles tomorrow to who will [win] the NBA championship to whether the U.S. and Iran will go to war. The contracts are typically priced between one cent and 99 cents, which roughly translates into what percentage of those customers believe that event will happen. While customers can bet on anything, roughly 90% of Kalshi’s [one of the prominent apps] trading volume goes toward wagers on sports, while roughly half of Polymarket’s trading is tied to sports.

Although there are differences between traditional gambling and this new version on the “back end” (charging “transaction fees to facilitate exchanges between buyers on opposite ends of contracts,” for instance), “the user experience is almost identical.”

The federal Commodity Futures Trading Commission, which “has historically overseen markets like oil futures, agricultural products, gold, and other financial products,” has asserted authority over prediction markets, and its chairman has threatened: “The CFTC will no longer sit idly by while overzealous state governments undermine the agency’s exclusive jurisdiction over these markets by seeking to establish statewide prohibitions on these exciting products.”

Governor Spencer Cox responded forcefully, as reported in the Deseret News, “saying he doesn’t remember the Commodity Futures Trading Commission ‘having authority over the ‘derivative market’ of LeBron James’ rebounds.’”

Over the weekend, the Utah Attorney General, Derek Brown, similarly promised to enforce Utah’s anti-gambling laws against companies that promise users the ability to make money based on an illusory distinction between the illegal practice of betting on the winner of the Superbowl and “trad[ing] on a financial contract tied to a future outcome in which the Seahawks would win the Super Bowl.”

Perhaps most importantly, legislators have proposed a bill that would specify that a “proposition bet,” defined as “a gambling bet on an individual action, statistic, occurrence, or non-occurrence,” is prohibited by the state’s gambling restrictions. The bill was approved unanimously in House and Senate Committees and with strong support in the full House. It should be considered by the full Senate soon.

State differences are a feature – an extremely valuable feature – not a bug in our constitutional system. Utah is wise to insist on its authority to keep gambling out of the state. This will allow the state, and other states through Utah’s example, to continue to experience the benefits of federalism. Allowing the federal government to override the states’ laws would put all that at risk.