Prediction Markets and the First Amendment

Miriam A. Cherry, University of the Pacific - McGeorge School of Law

Abstract

What would happen if new laws banning on-line gambling were used to target prediction markets? The answer is a clash with the First Amendment. The continuing development of prediction markets is important because of their success at foretelling the future. Unfortunately, overly restrictive gambling laws could jeopardize the progress of prediction markets. In this Article, we identify the expressive elements inherent in prediction markets and explore how legislation such as the Unlawful Internet Gambling Enforcement Act of 2006 might harm such predictive speech. This Article is the first to explore First Amendment protections for prediction markets, and in so doing, we distinguish prediction markets from other regulated areas such as gambling, commodities, and securities trading. We also analyze how the executive, legislative, and judicial branches might resolve this conflict and propose a new legal test, modeled on existing free speech jurisprudence, which may assist courts in adjudicating future constitutional challenges in this area.