Robinhood, Kalshi, Crypto.com Scramble as Court Rules Prediction Markets Are Gambling
A federal court in Nevada delivered a major setback for prediction market operators this week, issuing a decision that explicitly treats financial contracts tied to sports event outcomes as gambling. This ruling discards the industry's belief that federal registration with the Commodity Futures Trading Commission (CFTC) protects platforms like Kalshi, Crypto.com, and Robinhood from state gambling rules.
Judge Calls Event Contracts Sports Betting
The decision marks a sharp turn for prediction market operators. These firms, including Kalshi and the derivatives division of Crypto.com, have long argued that federal registration as a designated contract market keeps their offerings under the CFTC’s sole oversight, thereby insulating them from state gambling laws. Judge Andrew Gordon
Judge Andrew Gordon rejected this viewpoint, stating that sports outcome contracts do not qualify as “swaps” under the Commodity Exchange Act and can therefore be regulated by the state gaming authorities.
“Licensed gaming companies have invested millions of dollars to comply with state regulations only to supposedly find out that they could have just become CFTC-registered exchanges to offer sports gambling nationwide for anyone over the age of 18 without complying with Nevada’s gaming regulatory regime or paying taxes in this state,” Gordon wrote.
Crypto.com and Kalshi Battle Enforcement Threats
The fallout has been immediate. Crypto.com suspended sports event contracts for Nevada residents following a cease-and-desist letter from state regulators, pending ongoing litigation.
Kalshi faces similar pressures, as Nevada moved to overturn a previous injunction that had temporarily blocked enforcement against the platform. Both companies now face a shifting legal environment, where appeals could set new precedents and open the industry to state-by-state regulatory battles.
As usual, it mostly comes down to money. Robinhood recently said that prediction markets have become its largest revenue driver, attracting 9 billion contracts and 1 million users since March. Volumes on Kalshi and Polymarket are also hitting record levels, and people have clearly fallen into a betting frenzy on everything from outcomes tied to real-world events to wagers on Labubu dolls or supposed UFO landings in the United States.
Tribal and State Authorities Intensify Legal Push
The regulatory crossfire extends well beyond Nevada. The Ho-Chunk Nation, a federally recognized tribal entity in Wisconsin, recently filed a federal lawsuit accusing Kalshi and Robinhood of offering event contracts that skirt tribal gaming regulations and undercut the exclusivity of on-reservation sportsbooks.
The tribe alleges that young users are able to bet via smartphones on games that traditionally fall under tribal oversight, a move described in their complaint as “placing bets on the outcome of virtually every sporting event occurring across the globe.”
Similar lawsuits have emerged from California tribal groups, and several states, including New Jersey and Maryland, have sent cease-and-desist letters to Kalshi, prompting platforms like Robinhood to restrict access via geofencing.