In a significant ruling, the U.S. District Court for the District of Nevada dismissed Crypto.com’s request for an injunction against the state’s prohibition on sports event contracts. Judge Andrew P. Gordon’s decision, revealed in a detailed written order, clarified the legal standing of swaps, particularly addressing how they relate to sporting events. The ruling asserted that while swaps can consider whether an event occurs, they do not encompass the outcomes or results of that event.
The recent decision starkly contrasts a previous ruling from April, where Gordon granted a similar injunction to another entity, Kalshi. Crypto.com had hoped to leverage that precedent in its case, suggesting that its offerings were similarly positioned within the regulatory framework overseen by the Commodity Futures Trading Commission (CFTC). However, the court’s refusal to issue an injunction indicates a different interpretation of the law concerning sports event contracts, requiring Crypto.com to halt such activities within Nevada, although the company is expected to appeal the decision.
At the heart of the ruling is the debate over whether contracts related to sports events fit the definition of “swaps” as outlined in the Commodity Exchange Act (CEA). According to the CEA, a swap includes any agreement that depends on an event’s occurrence or nonoccurrence tied to a potential financial outcome. While prediction markets argue that this definition broadly encompasses nearly all types of bets, Judge Gordon emphasized that the interpretation of a swap should not be solely the domain of the CFTC. In fact, he pointed out that the agency has not specifically categorized sports event contracts as swaps.
Judge Gordon’s ruling placed significant emphasis on the distinctions between the terms “event” and “occurrence.” He referenced a 2003 decision by the U.S. Court of Appeals for the Ninth Circuit, which underscored the principle that differing terminology within legal statutes signals an intention for different meanings. Citing four dictionaries, Gordon concluded that an “event” signifies a notable occurrence, while an “occurrence” refers to a specific happening. He illustrated this differentiation with an example from horse racing, noting that the Kentucky Derby qualifies as an event, but the winner of the race is an outcome, not an event itself.
Thus, while regulatory definitions around swaps can be nuanced, the ruling indicates that sports event contracts are not swaps as defined under current law. Judge Gordon further cautioned that Crypto.com’s interpretation could theoretically permit a contract on any arbitrarily chosen subject, undermining the legislative intentions behind the CEA.
Moreover, Gordon raised concerns that classifying sports betting in this manner could imply that state-licensed sportsbooks and casinos are engaging in illegal securities trading, as swap transactions must occur on designated contract markets (DCMs). His decision suggested that if the broad interpretation Crypto.com proposed were valid, it would prompt a complete overhaul of the existing regulatory framework—a change that would likely have been explicitly articulated by Congress had it been intended.
Despite the unfavorable ruling, Crypto.com has indicated it plans to file an appeal with the U.S. Court of Appeals for the Ninth Circuit, a strategic decision following their service introduction in January. Their partnership with Underdog, a daily fantasy sports company, has broadened their reach, particularly in states where sports betting remains unregulated. As legal discussions around prediction markets evolve, the outcome of this case may offer substantial implications for the future of sports betting and regulatory interpretations in the U.S. legal landscape.
The ongoing case against Kalshi adds another layer of complexity, as it enters the discovery phase with state inquiries seeking a deeper understanding of its operations and communications with the CFTC. The differing judicial perspectives on the classification of sports event contracts may indicate a potential path to the Supreme Court, particularly as courts continue to navigate these contentious interpretations of financial regulations.
