Case Background
In a landmark decision, the U.S. District Court for the District of Nevada held that contracts based on sporting event outcomes offered on the federally regulated Kalshi exchange do not qualify as swaps under the Commodity Exchange Act (CEA). The ruling, issued on November 26, 2025, challenges the prevailing assumption that registration as a designated contract market (DCM) under CEA preempts state gambling statutes. As a result, state laws governing wagering and gaming may apply to prediction-market contracts previously considered outside the scope of state enforcement.
Judicial Reasoning
Judge Andrew Gordon emphasized that the statutory definition of a swap does not encompass instruments that pay out on the outcomes of real-world events such as sports. The ruling noted that licensed gaming companies rely on state regulatory regimes that include tax and compliance obligations, which DCM status was presumed to override. By distinguishing outcome-based contracts from traditional financial swaps, the court “shattered” the industry’s reliance on federal preemption to shield operators from state regulatory scrutiny.
Implications for Prediction Markets
Platforms like Kalshi, whose business model depends on the federal swap designation, now face potential enforcement actions by state gaming authorities. Nevada has already indicated intent to oppose Kalshi’s stay request and pursue criminal cases if contracts remain accessible to state residents. Similar legal challenges could emerge in other jurisdictions, leading to a fragmented regulatory environment that demands state-by-state licensing, taxation and compliance for prediction markets.
Industry Response and Next Steps
Industry stakeholders, including market operators and legal experts, must reassess reliance on federal preemption and evaluate contingency plans for multi-state adherence. Options include seeking legislative amendments, refining contract structures or pursuing broader judicial appeals. The outcome will define whether the federal DCM framework can sustain viable national prediction markets or if operators must navigate a complex patchwork of state gaming regulations.
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