A federal court in Nevada has dealt a significant blow to prediction market operators by classifying financial contracts related to the outcomes of sports events as gambling. This ruling dismantles the industry’s long-held belief that federal registration with the Commodity Futures Trading Commission (CFTC) shields platforms from state gambling laws. The court’s decision fundamentally changes the legal landscape for operators such as Kalshi, Crypto.com, and Robinhood.
Judge Andrew Gordon led the ruling, making it clear that contracts related to sports outcomes do not meet the definition of “swaps” under the Commodity Exchange Act. Consequently, state gaming authorities now have jurisdiction over these financial instruments. In his ruling, Judge Gordon expressed concern for licensed gaming companies that have invested heavily in compliance with state regulations, suggesting they were misled into believing that CFTC registration would allow them to offer sports gambling nationwide without adhering to state rules or tax requirements.
In light of the ruling, the reactions from the involved companies have been swift. Crypto.com has ceased its offering of sports event contracts to Nevada residents following a cease-and-desist letter issued by state regulators, as it navigates through ongoing legal challenges. Similarly, Kalshi finds itself under pressure, facing potential enforcement actions after Nevada sought to overturn a prior injunction that had temporarily protected the platform from such measures. This evolving legal situation has created an environment where appeals could lead to new precedents, igniting a wave of regulatory challenges that vary from state to state.
Financial motivations underlie much of the activity in this sector. Robinhood has reported that prediction markets have emerged as its largest source of revenue, boasting 9 billion contracts and 1 million users since March alone. Kalshi and Polymarket are also witnessing record transaction volumes, as users flock to bet on an array of event outcomes, from serious matters to whimsical wagers on everything from Labubu dolls to supposed UFO sightings.
The regulatory challenges are not isolated to Nevada. The Ho-Chunk Nation, a federally recognized tribal entity in Wisconsin, has initiated a federal lawsuit targeting Kalshi and Robinhood for allegedly offering event contracts that violate tribal gaming regulations and undermine the exclusive rights of on-reservation sportsbooks. The tribe claims young users are evading tribal oversight by placing wagers via smartphones on virtually every sporting event globally.
A similar wave of litigation has risen from tribal groups in California, and states like New Jersey and Maryland have also issued cease-and-desist letters to Kalshi. This has led platforms such as Robinhood to implement geofencing measures, further complicating the operational landscape for companies engaging in prediction markets. As the legal battles unfold, the future of prediction market operations hangs in the balance, influenced by both state concerns and the pressures from tribal authorities.
