Prediction Markets Lose Key Shield as Nevada Says Outcome Bets Aren’t Swaps

What Did the Nevada Federal Court Decide?

A federal court in Nevada has delivered one of the most consequential rulings in the short history of prediction markets, declaring that contracts based on the outcomes of sporting events do not qualify as swaps under the Commodity platform Act (CEA). The decision effectively places these contracts outside the jurisdiction of the U.S. Commodity Futures Trading Commission (CFTC), undercutting the long-held industry assumption that federal registration shields platforms from state gambling laws.

For years, prediction-market operators — including Kalshi, the most prominent federally regulated Designated Contract Market (DCM) offering event contracts — have argued that CFTC approval confers federal preemption. Under this view, once a platform operates as a CFTC-regulated platform, state gambling regulators cannot dictate the legality of its markets.

Judge Andrew Gordon disagreed. In his ruling, he emphasized that the case was not simply a narrow interpretation of the statute but fundamentally about protecting Nevada’s regulated gambling ecosystem. The state’s casinos and licensed sportsbooks, he wrote, have invested heavily in compliance and taxes — investments that would be undermined if unlicensed platforms could offer sports-related contracts nationwide under a federal derivatives framework.

Gordon warned that if Kalshi’s interpretation prevailed, Nevada’s licensed operators could bypass state rules entirely by becoming federally registered DCMs, triggering what he described as “unregulated gambling” detrimental to the state’s economy and tax revenues.

Investor Takeaway

Why Does This Ruling Matter for Prediction Markets?

Prediction markets have long relied on a simple regulatory thesis: Federal derivatives oversight displaces state gambling law. That assumption drove of platforms such as Kalshi and Polymarket.

New York-based earlier this year that the entire model hinged on this belief. “Once you’re federally registered, the states can’t regulate you,” he said, citing the authority over swaps markets.

Brogan also argued that prediction markets differ from gambling because they function like platforms, matching counterparties and charging fees rather than taking directional exposure like a sportsbook. But the Nevada court rejected this distinction in the context of sports-event outcomes, ruling that structure alone does not exempt such contracts from state gambling definitions.

The decision opens the door for Nevada to treat as unlicensed gambling and pursue enforcement. The state has already indicated it will oppose appeal and move forward if the platform remains accessible to Nevada residents without a state license.

Could This Trigger a State-by-State Regulatory Fight?

Kalshi has requested a stay pending appeal. The key legal question now is whether the definition of a swap under the CEA can be interpreted broadly enough to include contracts tied to sporting outcomes. If the definition cannot stretch that far, prediction markets lose the preemption argument — the single most valuable regulatory shield in the industry.

If the appeals court upholds the ruling:

• Prediction markets will face a state-by-state licensing landscape similar to online sports betting.
• Federal approval will no longer guarantee nationwide access for event-contract platforms.
• States with strong gaming lobbies, especially Nevada, New Jersey and Pennsylvania, may act rapidly to restrict or criminalize access without state licensing.

The consequences would reshape the industry. Instead of federal clarity, prediction markets would confront a compliance environment resembling the ahead days of online poker — fragmented, inconsistent and heavily influenced by local political pressures.

Judge Gordon’s ruling also hints at broader concerns. If prediction markets could bypass gambling law by operating under the CFTC, licensed casinos might abandon state systems and migrate to federal ones. Policymakers view that as a clear threat to state tax revenues and regulatory control.

Investor Takeaway

What Comes Next for the Industry?

The appeals process will determine whether the CEA’s swap definition can be interpreted broadly enough to pull sports-outcome contracts back under federal derivatives law. A reversal would restore the preemption model and preserve nationwide access for prediction markets.

If the ruling stands, however, the industry enters uncharted territory. The DCM structure — once viewed as the turnkey compliance path — would merely be the begining point. Platforms would need to navigate:

• state gambling statutes written long before event-contract markets existed
• gaming commission oversight typically designed for casinos and sportsbooks
• potential criminal liability if residents in states like Nevada can access unlicensed contracts
• a complex patchwork of inconsistent definitions of gambling, wagering and financial derivatives

The future of prediction markets may hinge not on whether the CFTC is comfortable supervising them, but whether individual states decide such contracts belong inside — or outside — their gambling frameworks.

For an industry built on the assumption that federal approval was the finish line, the Nevada ruling suggests it may instead be the first step in a far more complicated regulatory journey.