CFTC Signals Supreme Court Battle After Nevada Wins Prediction Markets Case

A court’s ruling that sports event contracts are not swaps that are regulated exclusively by the Commodity Futures Trading Commission (CFTC) set the stage for a Supreme Court case, a CFTC spokesperson told PYMNTS Friday (Aug. 28).

The statement came after a Friday ruling in a court battle between Nevada and three companies offering prediction markets.

The Nevada Gaming Control Board said that the Friday ruling by the Ninth Circuit court rejects the view that the federal Commodity Exchange Act preempts application of the state’s gaming laws to sports event contract.

The ruling came in the Board’s court battles with three companies that offer these event contracts on prediction markets: Crypto.com, Kalshi and Robinhood, according to the release.

The Board considers sports events contracts to be wagers, and the companies offering them to be required to be licensed in the state of Nevada, per the release.

“This completely vindicates what we have been saying all along,” Nevada Gaming Control Board Chairman Mike Dreitzer said in the release. “This is sports betting and needs to be properly regulated by the state.”

Reached by PYMNTS, Kalshi spokesperson Dani Lever said in an emailed statement: “The Ninth Circuit agreed with the Third Circuit on a fundamental point: federal law prevents states from regulating trading on a federally licensed exchange, like Kalshi. Despite the Ninth Circuit’s opinion, we still believe the CFTC regulations as written do not prohibit sports contracts, and in any event, the CFTC is working to clarify those regulations. We will be seeking further review.”

A Robinhood spokesperson told PYMNTS in an emailed statement: “We respectfully disagree with the court’s decision today and intend to appeal. As we’ve previously shared, every eligible customer should have access to these markets, which are federally regulated by the CFTC and offered through our CFTC-registered Futures Commission Merchant.”

Crypto.com did not immediately reply to PYMNTS’ request for comment.

CNBC reported Friday that the prediction market platforms had sought injunctive relief against the Nevada Gaming Control Board, which aimed to halt their operations in the state.

The platforms and the CFTC argued that event contracts are derivatives that are regulated at the federal level. The CFTC has sued nine states to defend what it says is its exclusive jurisdiction over prediction markets, according to the report.

The court’s ruling against the three prediction market platforms and in favor of Nevada contradicts a decision made in March by another court, setting up a potential case before the Supreme Court, the report said.

Reached by PYMNTS, CFTC spokesperson Zach Fulton said in an emailed statement that the court correctly said that the Commodity Exchange Act (CEA) gives exclusive jurisdiction to the CFTC, preempting state regulation of swaps, but incorrectly ruled on swaps and the Special Rule.

“A derivative contract structured as a swap is a swap regardless of the underlying subject matter — the only exceptions in statute are onions and movie box office receipts,” Fulton said. “The Ninth Circuit erred today when it invented a new and atextual exception to the CEA.”

“The Ninth Circuit has now teed up a circuit split that calls out for resolution by the Supreme Court,” Fulton said.

Seeking Alpha reported Friday that after the Ninth Circuit court’s ruling, shares of DraftKings and Flutter Entertainment rose 7.0% and 7.4%, respectively in late Friday trading.

CNBC also reported that those stocks rose, adding that the stocks had been impacted over the past year by concerns that their online sportsbooks could be disrupted by prediction markets.