The Trump administration has thrown its weight behind prediction market operators Kalshi and Polymarket in a federal-versus-state regulatory fight that escalated sharply after Nevada filed a civil lawsuit to block sports-related event contracts, while the Commodity Futures Trading Commission argued that states cannot reclassify federally regulated derivatives as illegal gambling.
What Happened: Nevada Sues Kalshi
The U.S. Court of Appeals for the Ninth Circuit denied Kalshi's request to pause enforcement actions by Nevada regulators. Within hours, the Nevada Gaming Control Board filed a civil lawsuit seeking to prevent the platform from offering sports-related event contracts to state residents.
Nevada regulators contend that Kalshi's event contracts, which let users trade on outcomes like sports results, function like traditional sports betting and require a state gaming license. The lawsuit seeks an injunction that could force Kalshi to halt local operations while litigation continues.
Kalshi disputes this, maintaining its contracts are financial derivatives, not wagers. The company operates as a federally regulated exchange and has moved to transfer the case to federal court, arguing federal oversight preempts state law.
The CFTC, under Chairman Michael Selig, filed an amicus brief supporting federal jurisdiction. The Trump administration's position reflects a broader policy shift toward treating prediction markets as part of the financial system rather than the gambling industry.
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Why It Matters: Regulatory Precedent
Federal officials argue that allowing individual states to impose bans could fragment regulation and undermine national derivatives markets. Prediction platforms let participants buy contracts priced between one and 99 cents based on the probability of real-world events, with sports-related contracts accounting for the majority of trading volume.
The legal battle is unfolding across several courts and could determine who regulates prediction markets nationwide.
States including Massachusetts and Tennessee have issued lawsuits or cease-and-desist orders, while operators continue to argue for federal protection.
Nevada's enforcement action increases immediate pressure on Kalshi, though appeals — including a potential emergency request to the U.S. Supreme Court — remain possible.
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