Federal Court Rules Nevada Can Seek to Bar Prediction Markets Despite CFTC Objection

According to court documents reviewed by Decrypt, the court found that the Nevada Gaming Control Board’s claims “arise under state law,” and that the Commodity Exchange Act “does not completely preempt” those claims. The Gaming Board has sought to bar Kalshi from operating what it claims is an unlicensed sports book due to the prediction market listing contracts on the outcome of sporting contests. Such contracts account for a majority of the market’s trading volume.

The Commodities Futures Trading Commission has lately sought to assert its exclusive jurisdiction under the law to regulate what it defines as futures exchanges and contracts it defines as “swaps.” The agency has backed Kalshi in legal disputes with states, including Nevada, claiming the Exchange Act preempts any state law or regulation.

In Monday’s ruling, the federal court said a “plain reading” of the Commodity Exchange Act makes clear Congress did not intend of it to “completely displace ordinarily applicable state law,” and it is up to state courts to determine whether an injunction against the market is warranted.

In comments to Decrypt, legal analyst Daniel Wallach said of the ruling was “not unexpected,” but was “still a significant setback for Kalshi because it puts the company one step closer to being pushed out of the Nevada market, which would represent the first state where Kalshi was forced to cease offering event contracts due to a court ruling.”

Read more: The Battle Between CFTC and State Regulators Over Prediction Markets Spreads to Capitol Hill

The ruling could create a “domino effect on Kalshi’s lawsuits with other state governments because once Kalshi has to ‘geofence’ in one state, it becomes harder for Kalshi to argue in other cases that it would impose ‘irreparable harm’ on the company to implement geolocation technology,” Wallach added.

In a separate case also handed down Monday, the federal court also rejected Kalshi-competitor Polymarket’s bid to move its lawsuit with Nevada to federal court, finding it was not “acting under” the CFTC by running a regulated exchange and self-certifying contracts, per Decrypt. The company immediately filed an emergency motion seeking a stay of the court’s ruling while it prepares an appeal.

For Kalshi, the next step could be to ask the Supreme Court for an administrative stay of the district court’s remand order while it appeals the ruling to the Ninth Circuit Court of Appeals.

“There is precedent for SCOTUS to issue a short administrative stay to preserve the status quo in order to enable the circuit court to rule on a pending stay motion. But without any guarantee on expedition from the Ninth Circuit, it might be a tough ask,” Wallach said.

Monday’s rulings are likely to deepen the uncertainty around the legal status of prediction markets and the role of the CFTC in regulating them. In 2024, Kalshi sought to list “Congressional Control Contracts” allowing users to bet on the outcome of the 2024 congressional elections. Under a different presidential administration at the time, the CFTC sought to bar the contracts, arguing they constituted gaming or election gambling, which is prohibited in many states.

Kalshi sued the agency under the Administrative Procedures Act, and the federal district court in Washington, DC, ruled the CFTC had erred in categorizing the contracts as gaming or gambling and vacated its decision. The DC Circuit Court of Appeals then ruled that the CFTC’s concerns about potential harms, such as market manipulation and threats to election integrity, were “speculative” and not substantiated by concrete evidence.

Now on the other side of the gambling question, CFTC has again been blocked from exercising authority over prediction markets, but to opposite effect.