A federal
court in Nevada delivered a major setback for prediction market operators this
week, issuing a decision that explicitly treats financial contracts tied to
sports event outcomes as gambling. This ruling discards the industry’s belief that federal registration with the Commodity Futures Trading Commission (CFTC) protects platforms like Kalshi, Crypto.com, and Robinhood from state gambling rules.
Judge Calls Event Contracts Sports Betting
The
decision marks a sharp turn for prediction market operators. These firms,
including Kalshi and the derivatives division of Crypto.com, have long argued
that federal registration as a designated contract market keeps their offerings
under the CFTC’s sole oversight, thereby insulating them from state gambling
laws.
Judge
Andrew Gordon rejected this viewpoint, stating that sports outcome contracts do
not qualify as “swaps” under the Commodity Exchange Act and can therefore be
regulated by the state gaming authorities.
“Licensed
gaming companies have invested millions of dollars to comply with state
regulations only to supposedly find out that they could have just become
CFTC-registered exchanges to offer sports gambling nationwide for anyone over
the age of 18 without complying with Nevada’s gaming regulatory regime or
paying taxes in this state,” Gordon wrote.
Crypto.com and Kalshi
Battle Enforcement Threats
The fallout
has been immediate. Crypto.com
suspended sports event contracts for Nevada residents following a
cease-and-desist letter from state regulators, pending ongoing litigation.
Kalshi
faces similar pressures, as Nevada moved to overturn a previous injunction that
had temporarily blocked enforcement against the platform. Both companies now
face a shifting legal environment, where appeals could set new precedents and
open the industry to state-by-state regulatory battles.
As usual,
it mostly comes down to money. Robinhood recently said that prediction markets
have become its largest revenue driver, attracting
9 billion contracts and 1 million users since March. Volumes on Kalshi and
Polymarket are also
hitting record levels, and people have clearly fallen into a betting frenzy
on everything from outcomes tied to real-world events to wagers on Labubu
dolls or supposed UFO landings in the United States.
Tribal and State
Authorities Intensify Legal Push
The
regulatory crossfire extends well beyond Nevada. The Ho-Chunk Nation, a
federally recognized tribal entity in Wisconsin, recently
filed a federal lawsuit accusing Kalshi and Robinhood of offering event
contracts that skirt tribal gaming regulations and undercut the exclusivity of
on-reservation sportsbooks.
The tribe
alleges that young users are able to bet via smartphones on games that
traditionally fall under tribal oversight, a move described in their complaint
as “placing bets on the outcome of virtually every sporting event occurring
across the globe.”
Similar
lawsuits have emerged from
California tribal groups, and several states, including New Jersey and
Maryland, have sent cease-and-desist letters to Kalshi, prompting platforms
like Robinhood to restrict access via geofencing.
This article was written by Damian Chmiel at www.financemagnates.com.
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