A judge in Nevada has denied Crypto.com’s request for a preliminary injunction in its ongoing legal battle with the Nevada Gaming Control Board. This ruling follows a similar petition from Kalshi, which was granted by the same judge earlier this year, creating an interesting precedent in the realm of sports event contracts.
U.S. District Court Judge Andrew Gordon had previously ruled in favor of Kalshi in April, asserting that the sports markets it offers likely fall under the swaps category defined by the Commodity Exchange Act (CEA). The CEA serves as the governing framework for markets managed by trading entities licensed by the Commodity Futures Trading Commission (CFTC), which licenses both Kalshi and Crypto.com.
In his ruling regarding Kalshi, Judge Gordon emphasized, “Section 2’s plain and unambiguous language grants the CFTC exclusive jurisdiction over accounts, agreements, and transactions involving swaps or contracts of the sale of a commodity for future delivery that are traded or executed on exchanges designated by the CFTC.”
Despite the setback, Crypto.com remains optimistic about its position. A company spokesperson noted that two contradictory rulings on similar issues from the same judge suggest a strong potential for a different outcome at the appellate level. The spokesperson reiterated their stance that the contracts they provide qualify as swaps under the CEA and expressed eagerness for the next steps in their appeal process.
Legal analysts are scrutinizing the implications of Judge Gordon’s ruling in the Crypto.com case. Gaming lawyer Daniel Wallach speculated that the unfavorable decision likely stemmed from Crypto.com’s inability to convincingly demonstrate a likelihood of success, primarily revolving around whether their contracts meet the definition of swaps.
In his discussion of the broader implications, Wallach remarked that should sports event contracts be deemed not to satisfy the conditions of swaps under the CEA, it could potentially dismantle the entire business model of companies like Crypto.com. His evaluation underlined that Kalshi’s federal preemption argument hinges on these contracts receiving designation as swaps, and should that designation fail, their legal standing would be significantly weakened.
While Kalshi has previously achieved an injunction in New Jersey based on a similar argument of federal governance by the CFTC, it faced defeat in Maryland, where a judge concluded that Kalshi could not sufficiently prove that Maryland’s gaming laws were preempted by the CEA.
The recent ruling raises concerns about the future of prediction markets. If courts ultimately conclude that these markets do not qualify as swaps, businesses may be compelled to either withdraw these markets or seek state-level gambling licenses. The CFTC, which has maintained a relatively low profile regarding sports prediction markets, recently issued a cautionary note to operators, indicating they might face litigation and should prepare contingency plans. Such a scenario could lead companies to block access for users in specific states due to varying state gambling regulations.
Currently, sports betting operations must navigate a complex landscape of state-specific requirements, with prediction market platforms claiming to provide legal sports betting in all 50 states, despite the necessary approvals often lacking.
This adverse ruling for Crypto.com arises at a time when prediction markets appeared to be gaining traction in the sports betting industry. Following Kalshi’s launch of same-game parlays on NFL games, shares of major players like DraftKings and Flutter experienced notable drops. Despite these developments, stock prices have been relatively stable following the ruling, with DraftKings’ shares falling from over $42 to below $35 and Flutter’s dropping by over 10% in just five days.
Investment banks remain split on whether prediction markets will fundamentally alter the sportsbook landscape. The ruling in Nevada signifies an important moment in the ongoing legal discourse surrounding prediction markets, though a resolution on their legal status remains distant. This case highlights the evolving legal challenges faced by companies operating in this rapidly changing sector.
