How Long Will OneSeason Last?

OneSeason.com, a sleek new sports prediction market exchange, may be of limited interest to strictly political traders, who are about as likely to buy and sell Kobe Bryant and A-Rod shares as they are to trade financials these days. Still, even if November 4 is your Super Bowl, there is good reason to pay close attention to this new sports predicton site.

That's because OneSeason appears to be the first real-money prediction market operating out of the United States without explicit approval from the CFTC. As of this morning, the site is currently accepting credit cards and Paypal accounts from U.S. citizens eager to buy initial public offerings in baseball, basketball, football, and hockey teams and players, whose values will not be based on game outcomes, but rather determined solely on the basis of public perception of their worth.

Launched today in San Francisco by Michael Sroka, a 27-year-old entrepreneur determined to combine his obsession with sports and his love of trading, OneSeason does not seem to be affiliated with an educational institution. Unlike the Iowa Electronic Markets, therefore, it will seemingly be unable to claim an academic exemption under the 2006 Unlawful Internet Gambling Enforcement Act.  

Thus, the question is how long the site will be able to remain in operation in the United States accepting real money. From the legal small print on its website, it appears that OneSeason will argue that it is not a gambling operation because its sports stock prices are not based on the outcomes of events. Still, will that be enough to differentiate it from Intrade, which is currently still prohibited by the Gambling Act from accepting American credit cards? After all, OneSeason plans to make its money through trading fees.

Will the CFTC look the other way? If so, it could signal the beginning of a revolution and pave the path for a slew of new political trading and other real-money prediction sites? Let us know what you think.

About that Sinking Stock Market...Intrade Reports $100 million in trades while Wall Street Suffers

In a recent article on the predictive power of markets, the Financial Times buried the lede: Political traders at Intrade have invested more than $100 million in political stocks this election cycle, a six-fold increase over 2004! With a slick new site and more press coverage than ever, Intrade will continue to pad that number nicely over the final two months of the campaign.

With the Dow down nearly 350 points this afternoon, and with analysts like Henry Blodget predicting there may be a lot more pain to bear, prediction markets are poised to fill the void. Even as the CFTC is still deciding if and how to regulate political prediction markets like Intrade, some traders getting socked in the stock market have been diversifying their traditional portfolios with political futures.

One particularly bullish investor sees a very bright future in political futures. While acknowledging that such markets are still plagued by liquidity issues and other problems, he notes that "if a major exchange such as CME Group were willing to create a news event market and did it at their current standard it could become a trillion dollar (in outstanding notional value) market in months."

So, while traditional traders cling to the silver lining cited by Blodget after today's crash that "the farther stocks drop, the better the return long-term investors will be," and that "if the Dow drops another thousand points or so, investors might even be able to look forward to a 10-year return that exceeds that of cash" -- political investors are finding an unconventional way to stay afloat in the current trading environment.

CFTC Considers Regulating Prediction Markets

In what may be the biggest news for the nascent industry yet, the Commodity Futures Trading Commission (CFTC) is hinting that it may be ready to regulate political prediction markets. A recent press release touts the evolution of markets and encourages members of the public to submit comments about whether they should be grantd full legal status in the United States:

CFTC Requests Public Input on Possible Regulation of “Event Contracts”
Washington, DC – The Commodity Futures Trading Commission (CFTC) is asking for public comment on the appropriate regulatory treatment of financial agreements offered by markets commonly referred to as event, prediction, or information markets.

During the past several years, the CFTC has received numerous requests for guidance involving the trading of event contracts. These contracts typically involve financial agreements that are linked to events or measurable outcomes and often serve as information collection vehicles. The contracts are based on a broad spectrum of events, such as the results of presidential elections, world population levels, or economic measures.

“Event markets are rapidly evolving, and growing, presenting a host of difficult policy and legal questions including: What public purpose is served in the oversight of these markets and what differentiates these markets from pure gambling outside the CFTC’s jurisdiction?” said CFTC Acting chairman Walt Lukken. “The CFTC is evaluating how these markets should be regulated with the proper protections in place and I encourage members of the public to provide their views.”

See full press release here

Obviously, great news for traders, entrepreneurs, and armchair prediction-market pundits alike. Whether you've studied the accuracy of prediction markets, written about the tax implications of legalizing them, or are simply looking for a recession-proof way to make a bundle while Wall Street gets walloped, it's time to chime in. Submit your comments to secretary@cftc.gov.