Nevada Challenges Sports-Based Event Contracts

Nevada has just become the first state in the US to challenge the rapid rise of sports-based “event contracts” offered by platforms like Kalshi, Crypto.com, and Polymarket.

The Nevada Gaming Control Board, the state’s gambling regulator, has asked Kalshi Inc. to stop offering derivatives trading on professional and college sports to users in the state by March 14.

Sites like Kalshi and Crypto.com have processed millions in sports contracts in the past couple of months, especially since they began taking wagers tied to the outcome of the Super Bowl.

Unlike state-regulated online and in-person sports books, prediction markets are overseen by the Commodity Futures Trading Commission (CFTC), which allows them to offer products to young traders and bypass state rules, taxes, age restrictions, and other requirements.

Nevada Gaming Control Board Issues Cease-and-Desist Order to Kalshi

Nevada issued a cease-and-desist order to Kalshi on the grounds that its contracts violated state rules for sports pools, which need to be licensed, inspected, and taxed, as stated in a March 4 press release on X.

> The @NevadaGCB issued the following news release today. pic.twitter.com/uzQEwE2yy1
> — Nevada Gaming Control Board (@NevadaGCB) March 5, 2025

“Any unlawful attempts to circumvent Nevada’s right to regulate gaming activity within its borders will face the full force of criminal and civil penalties,” said Nevada Gaming Control Board chairman Kirk Hendrick.

The Nevada regulator has given Kalshi 10 days to “cease all unlawful activity,” noting that “criminal and civil penalties” may follow if non-compliance occurs.

However, it remains unclear if Kalshi will comply. During the last days of the Biden administration, Crypto.com rejected a CFTC request to halt trading in its Super Bowl contracts for more review time.

Bloomberg previously reported that Kalshi processed over $70 million in contracts linked to about 150 sports markets since launching the product in January, with approximately $27 million tied to the Super Bowl. Kalshi and Crypto.com have since expanded beyond football to include soccer championships, NBA and NHL games, and golf.

Regardless of Kalshi’s response, Nevada has set a precedent for other states to follow in regulating sports gambling. Since the 2018 US Supreme Court lifted the national ban on sports betting, 38 states and Washington D.C. have legalized some form of sports gambling, with taxes on operators becoming a crucial revenue source.

Chris Cylke, the senior vice president of government relations for the American Gaming Association, noted: “The Nevada Gaming Control Board’s decisive action on Kalshi highlights significant concerns regarding sports event contracts, especially in relation to state laws.”

The Nevada regulator also indicated that Kalshi’s election contracts violate state rules, as these derivative products allow wagers on nearly any event, with sports being the highest stakes.

CFTC acting chair Caroline Pham has requested additional information from companies about their sports contracts and plans to hold discussions regarding the broader regulation of event contracts.

How Kalshi Has Responded

In response, a Kalshi spokesperson stated that “Kalshi is federally regulated by the CFTC,” asserting the platform’s commitment to a “regulation-first approach.” They acknowledged receipt of the NVGCB letter and are currently reviewing it.

Kalshi expressed disappointment with the commission’s assessment, reiterating its respect for regulators and the regulatory process. “We’ve been a federally regulated exchange for over four years and a federally regulated clearinghouse for about six months,” the statement read. “We look forward to a swift resolution to this matter and ensuring that Americans have access to safe, regulated, and transparent prediction markets.”

This statement leaves ambiguity regarding how Kalshi plans to respond to the Nevada order and the March 14 deadline. As of Wednesday morning, Kalshi claimed it remains fully operational in Nevada, suggesting readiness to challenge the verdict.

The outcome of the 2024 US elections has shifted leadership at the CFTC, which might be more open to Kalshi’s argument that its sports and election contracts comply with federal law under the Commodity Exchange Act, which traditionally has been understood to apply to sports contests.

Kalshi may feel bolstered by the recent addition of Donald Trump Jr. as a “strategic advisor.” Former CFTC commissioner and current Kalshi board member Brian Quintenz is also waiting to take over as CFTC chairman.

> On Election night at Mar-a-Lago, while biased outlets called the race a coin toss, my family and close friends used the prediction market @Kalshi to know we won hours ahead of the fake news media.
> I immediately knew I had to contribute to their mission. Today, I am proud to…
> — Donald Trump Jr. (@DonaldJTrumpJr) January 13, 2025

The CFTC has requested that Kalshi halt offering sports markets during an ongoing formal review period. Upcoming discussions will involve various stakeholders, including the American Gaming Association (AGA), California Nations Indian Gaming Association, Nevada Congresswoman Dina Titus, and the Indian Gaming Association (IGA).

Arguments from AGA and IGA question whether the federal law via the Commodity Exchange Act and the CFTC supersedes state laws regarding gaming, specifically sports gambling.

Although Kalshi has already won one court victory and gained political backing with Trump Jr.’s involvement, it likely has a strategy to demonstrate that its operations in Nevada are lawful. The situation is evolving, and more developments are expected as the CFTC decides on the legality of sports-event contracts federally.

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