Prediction market Kalshi lost a court case earlier this week when a federal judge ruled that Nevada state regulators and laws had jurisdiction over some of its sports-based events contracts. The case is going to go before an appeals court but if this result holds, it might restrict all prediction markets providers, including companies like Polymarket.

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Smart money

The narrative

A federal judge ruled against Kalshi in its case against Nevada's gaming regulators, saying that the prediction market provider's sports-related contracts should be overseen by state gaming commissions.

Why it matters

A part of the appeal of prediction markets providers — Kalshi, Polymarket, all the burgeoning crypto exchange products — is that they're subject to a single federal regulatory framework and do not need to comply with each state's bespoke regulatory setup. This week's ruling by a federal judge in Nevada could complicate that belief.

Breaking it down

In an effort to overly simplify this, Kalshi's events contracts are swaps, for the purposes of the Commodities Exchange Act and this newsletter, meaning they are products overseen by the U.S. Commodity Futures Trading Commission and subject to federal jurisdiction — which preempts state supervision.

This was part of Kalshi's argument when it sued the CFTC in 2023 in an effort to launch its political event contracts. A year later, a federal court agreed.

Kalshi has since expanded into other types of events, including, importantly, sports outcomes. It sued the state of Nevada's Gaming Control Board and Gaming Commission earlier this year, seeking an injunction to block the state entities from filing an enforcement action against it for offering event contracts tied to sports outcome markets, saying that was an "intrusion into the federal government's 'exclusive' authority to regulate futures derivatives trading on exchanges overseen by the" CFTC. The company won a preliminary injunction, which was dissolved earlier this week.

Nevada, in its initial response, sought to draw a distinction between commodities trading (which it can't oversee) and gaming (which it does oversee within the state), and further between sports-related bets versus contracts tied to political outcomes.

In this week's ruling, Judge Andrew Patrick Gordon of the District of Nevada wrote that "event contracts that turn on the outcomes of sporting events are not swaps and thus do not fall within the CFTC's exclusive jurisdiction," citing a previous case he had ruled on as well.

"It is absurd to think that Congress intended for DCMs to turn into nationwide gambling venues on every topic under the sun to the exclusion of state regulation and with no comparable federal regulator without ever mentioning that was the goal when Congress added swaps to the CEA in 2010," the judge wrote.

In its motion for a stay, Kalshi said it would file a notice of appeal to the Ninth Circuit Court of Appeals, pointing to different rulings from various federal courts over the jurisdiction state regulators and laws might have around prediction markets.

Attorneys for the state said on Wednesday that Nevada would hold off on filing any kind of enforcement action pending the court's decision on Kalshi's request, but argued that Kalshi had not met the requirements to secure a stay and asked for an expedited schedule.

"[Kalshi] has unreasonably refused to stop its unlawful activities in Nevada, even while Crypto.com and Robinhood have entered into agreements with State Defendants to avoid enforcement pending appeal," the filing said. "Further, every day it continues operating, it harms the State, its gaming industry, and the public interest."

A policy analyst with TD Cowen, Jaret Seiberg, said in a client note on Wednesday that this question is likely to fall into the hands of the Supreme Court, because lower courts have been diverging on their conclusions. But even if that happened on an expedited basis, he said it'll stretch the outcome into 2027, and maybe later.

"Regardless of how it gets to the Supreme Court, we give the states the edge," Seiberg argued. "Gambling has long been state regulated. This would upend that tradition. It means Kalshi and others face the risk that Congress would intervene in favor of the states even if they are able to win in court."

Seiberg predicted a potential compromise during the appeals process that opened states' ability to tax and regulate sports-tied event contracts but agreeing not to force out firms with "designated contract market" status with the federal Commodity Futures Trading Commission, such as Kalshi.

This week

This week

• We are officially entering the last month of 2025. We're looking for a markup in the Senate Agriculture and Banking Committees for market structure legislation and a Senate floor vote for CFTC Chair nominee Mike Selig, but none of these have been scheduled as of press time.

If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at [email protected] or find me on Bluesky @nikhileshde.bsky.social.

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See ya’ll next week!