Nevada Ruling Shakes Up Prediction Market Assumptions

For years, prediction market startups and their investors believed a simple strategy would shield them from state gambling laws: register as a federally regulated Designated Contract Market (DCM), operate under the Commodity Exchange Act (CEA), and let federal preemption handle the rest. That assumption was upended when a federal court in Nevada ruled that contracts paying out on the outcome of sporting events are not swaps under the CEA — and therefore fall outside the Commodity Futures Trading Commission’s jurisdiction.

Judge Andrew Gordon emphasized that his ruling wasn’t a narrow statutory interpretation but a protection of Nevada’s core economic interests. He noted that licensed gaming companies spend millions to comply with Nevada’s strict regulations, and allowing prediction platforms to bypass those rules through federal registration would create an uneven playing field and undermine the state’s tax revenues.

This ruling challenges the long-held belief within the prediction market industry that federal oversight alone neutralizes state gambling laws. Earlier this year, New York-based crypto attorney Aaron Brogan explained that the sector’s entire regulatory model depends on the premise that a federally registered platform is shielded from state interference. He also argued that prediction markets differ from gambling because exchanges like Kalshi match traders and collect fees rather than acting as bookmakers.

Judge Gordon warned that accepting Kalshi’s interpretation could incentivize Nevada’s regulated gambling companies to reclassify themselves as DCMs, increasing unregulated nationwide gambling and harming the state’s economy. With Nevada now asserting a clear legal pathway to take criminal action if state residents access these contracts, the regulatory stakes have risen sharply.

Kalshi has requested a stay pending appeal, but Nevada’s Gaming Control Board has vowed to fight it aggressively. The upcoming appeals process will determine whether outcome-based contracts can still fit within the federal swap definition — a key factor in restoring federal preemption.

If that effort fails, prediction markets will face a new reality: federal approval alone won’t be enough. Instead of a streamlined national model, these platforms may confront a fragmented landscape of state gambling laws that could ultimately determine their survival.