A federal judge’s decision questions federal preemption and raises new regulatory challenges for prediction market operators
Prediction markets are facing fresh uncertainty after a federal judge ruled that sports-based event contracts offered by Kalshi fall under state gaming authority, not exclusive federal oversight. The decision, now heading to an appeals court, signals a potential shift in how prediction markets may be regulated across the U.S.
State vs. Federal Oversight of Prediction Markets
Kalshi, which traditionally operates under the Commodity Futures Trading Commission (CFTC), argues that its event contracts qualify as swaps under the Commodity Exchange Act, placing them firmly under federal jurisdiction.
However, Nevada’s regulators countered that sports outcomes constitute gambling, giving the state authority to supervise such markets within its borders.
In dissolving a previous injunction, Judge Andrew Patrick Gordon ruled that sports-tied event contracts are not swaps, narrowing the scope of federal oversight. The court emphasized that Congress did not intend for federally regulated exchanges to become nationwide gambling venues, highlighting the limits of federal preemption.
Why This Ruling Matters
The appeal of prediction markets like Kalshi and Polymarket has long been rooted in the belief that they operate under one federal regulatory framework rather than 50 different state systems.
The latest ruling challenges this assumption, creating potential compliance burdens and complicating expansion strategies for market operators.
This setback could reshape how event markets—especially sports-related ones—are offered nationwide.
Ongoing Appeals and Possible Outcomes
Kalshi has moved to appeal in the Ninth Circuit, noting conflicting rulings across federal courts regarding state authority over prediction markets. Analysts expect the issue could eventually reach the U.S. Supreme Court, extending the resolution into 2027 or beyond.
Policy experts suggest a possible middle-ground approach where states gain taxing and regulatory rights over sports-based contracts, while federal oversight continues for platforms with recognized exchange status.
The Nevada ruling introduces a pivotal moment for prediction markets, raising questions about the boundaries between federal derivatives regulation and state gaming law. As appeals progress, the industry faces heightened legal uncertainty that could influence operational models, compliance strategies, and the broader future of event-based trading in the U.S.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.