The fantasy sports app Sleeper has finally cleared a regulatory hurdle that delayed its plans to begin offering sports prediction markets. The National Futures Association approved Sleeper’s requests for NFA membership, as well as designation as both a swap firm and a Futures Commission Merchant (FCM). 

Sleeper first submitted for NFA clearance last May. After waiting a few months, Sleeper filed a lawsuit against the Commodity Futures Trading Commission and then-acting CFTC chair Caroline Pham alleging that they had unlawfully stalled Sleeper’s registration.

Attorney Josh Sterling, the Milbank partner representing Sleeper in the lawsuit, posted about the NFA approval on LinkedIn. In the wake of the sign-offs, Sterling also said that Sleeper’s lawsuit against the CFTC had been dismissed and thanked Michael Selig, who was sworn in as the new CFTC chair in late December. 

“We sued, new leadership replaced old, and our client had its due process rights restored,” Sterling wrote. “Companies don’t have to let executive branch agencies run roughshod over them, and Sleeper didn’t. Thanks to the CFTC Chairman for his leadership and to NFA leadership for being a good partner throughout this process.” 

Sleeper’s registration filings in the NFA portal say that the approvals were granted on Jan. 9. The applications were submitted under the name Sleeper Markets LLC.

The NFA is a CFTC-authorized self-regulatory organization that administers and enforces CFTC rules for the firms it registers, while the CFTC retains ultimate oversight. The NFA certifies companies as FCMs, swap firms, and introducing brokers, whereas the CFTC handles approvals for Designated Contract Markets (DCMs) and Designated Clearing Organizations (DCOs).

Businesses with DCM and DCO status can operate as full-service prediction market companies, enabling them to create and clear markets, self-certify contracts, and oversee customer accounts and their associated funds, margins, and settlements.

Clearance as an FCM allows a company like Sleeper to partner with a DCM such as Kalshi or Crypto.com to offer their self-certified prediction markets. Sleeper has not indicated whether it will provide event contract trading through its existing fantasy sports platform or via a new, separate app.

Sleeper has also yet to announce a DCM partnership, a prediction market launch timeline, or what kinds of markets it will offer. But given Sleeper’s popularity as a DFS platform, it seems likely there will be a focus on sports event contracts. 

In a September news release announcing the lawsuit against Pham and the CFTC, Sleeper said the regulators “unlawfully blocked Sleeper’s application for futures commissions merchant (FCM) license in a decision that unfairly favors competitors and immediately harms Sleeper’s business.”

A few weeks before the lawsuit, one of Sleeper’s biggest competitors in the DFS space, Underdog, announced a partnership with Crypto.com to offer sports prediction markets in its app. The alliance was described as a “technology partnership”; Underdog also hadn’t received NFA approval as a FCM. 

Sleeper could follow Underdog’s rollout strategy, which mostly avoided friction with state gaming regulators. Underdog began offering Crypto.com sports markets inside the main Underdog Fantasy mobile app, initially limiting access to 16 states. The focus at launch was on jurisdictions without a legal sports betting market, including California and Texas, a tact Sleeper could also follow. 

Several states with sports betting markets have been battling prediction platforms like Kalshi, Crypto.com and Robinhood in court over their right to offer sports event contract trading, which the states claim fall under their regulatory oversight. The exchanges say federal regulation by the CFTC supersedes state laws and actions. 

Underdog has since begun offering prediction markets in a dozen more states, including ones that have regulated sports betting, including Florida, Indiana, West Virginia, and Oregon. Notably, none of those states have yet taken action to restrict prediction platforms from offering sports markets. 

Underdog did face some state-level fallout over its prediction market entry. Despite never offering its sports markets in Arizona, gaming regulators in the state issued a notice of intent to revoke Underdog’s fantasy sports license, citing its involvement with Crypto.com’s sports event contracts as the reason.

This week, it was reported that Underdog had also received NFA approval as an FCM and swap firm. The clearance gives Underdog firmer regulatory standing with the CFTC and allows the platform to partner with other DCMs. 

With NFA approval in hand, Sleeper now enters a crowded market for sports prediction contracts. Besides Underdog, Sleeper will face competition from other major sports gaming operators like DraftKings, FanDuel, and Fanatics, all of which have launched prediction market products in select states in the last month and a half. Another DFS platform with FCM status, PrizePicks, currently offers event contracts from Kalshi and will eventually also offer contracts from Polymarket. Even Gemini, the crypto-focused trading and investing app, has added sports prediction markets, but is off to a slow start.

The leading sportsbooks, as well as Underdog, PrizePicks and Sleeper, are hopeful that their large, existing user bases will translate to more engagement with the prediction offerings.

Kalshi’s sports markets, still available in all 50 states, have also proven to be wildly popular, and Polymarket soft launched its U.S. platform with sports contracts late last year. Like PrizePicks, Sleeper could partner with those DCMs, or choose another, including Crypto.com (also Fanatics Markets’ DCM partner) or CME Group, which is currently powering the prediction markets at both DraftKings Predictions and FanDuel Predicts.

Sleeper’s NFA approval removes a major hurdle, but the next challenge will be attracting users in a highly competitive, rapidly evolving market. The federal clearance sets the stage, but the race for users and liquidity is just beginning.

The post Sleeper Receives NFA Approval To Offer Prediction Markets appeared first on DeFi Rate.

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