Nevada Gaming Control Board Warns Kalshi To Halt Trading On Sports And Elections, Says Activity Is ‘Unlawful In Nevada’

On Tuesday evening, the Nevada Gaming Control Board issued a cease-and-desist order to KalshEX LLC (Kalshi) and an accompanying statement declaring that “event-based contracts” on sporting events and election outcomes offered on Kalshi are “unlawful in Nevada unless and until approved by the Nevada Gaming Commission.”

The statement and order marks a significant escalation amid growing tensions between Kalshi and regulators at both the federal and state level. This faceoff, first reported by Dustin Gouker in the Event Horizon Substack, is the first known confrontation between a state authority and the company involving sports events.

The order gives Kalshi 10 days to “cease all unlawful activity” and notes that “criminal and civil penalties” may follow and “any future unlawful activity will be deemed willful violations.”

Kalshi is a registered entity with the federal Commodity and Futures Trading Commission (CFTC) that has self-certified certain sports-based event contracts and in the fall won a decision in federal court allowing it to proceed with offering prediction markets on the outcomes of elections. The CFTC attempted to halt those markets on the basis that they are contrary to the public interest and otherwise run counter to existing regulations, and is currently appealing the decision. The sports event contracts allow, in effect, betting on sports outcomes, otherwise known as sports betting, although the trading is conducted on an exchange and not against the house. 

“Every sports pool in Nevada must undergo an extensive investigation prior to licensing, must adhere to strict regulation once licensed, and must pay all applicable taxes and fees.” Nevada GCB Chairman Kirk Hendrick stated. “Any unlawful attempts to circumvent Nevada’s right to regulate gaming activity within its borders will be met with the full force of criminal and civil penalties.” 

Will Kalshi or won’t Kalshi stop?

In a statement given to Event Horizon, Kalshi said:

“While we’re disappointed with the Commission’s assessment, Kalshi has always held the utmost 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. We are proud to have paved the way for prediction markets to thrive in the U.S. We look forward to a swift resolution to this matter and to ensuring that Americans continue to have access to safe, regulated, and transparent prediction markets.”

Thus the company did not tip its hand as to how it might proceed, legally or strategically, in the face of the Nevada order and March 14 deadline.

As of Wednesday morning, “Kalshi remains fully operational in Nevada,” according to Kalshi spokesperson Jack Such.

The results of the November 2024 U.S. elections brought heavy winds of change and new leadership at the CFTC, which collectively appears much more receptive to Kalshi’s position that their election as well as sports-event contracts ought to be lawful under the Commodity Exchange Act and relevant CFTC regulations, which prohibit markets on “gaming,” which to this point has been interpreted to apply to sports contests. 

The company has appeared emboldened in recent months, posting a growing number of sports-related markets on its exchange that is indeed available and accessible in all 50 states, Nevada included. Kalshi also in recent months has added Donald Trump Jr. as a “strategic advisor,” while current Kalshi board member and former CFTC chairman Brian Quintenz is poised to take over as the chairman of the CFTC if and when he is successfully confirmed. 

The CFTC requested that Kalshi discontinue offering sports markets during a formal review period that is now underway, however Kalshi to this point has not obliged. Upcoming soon is a series of roundtable discussions between various stakeholders seeking to participate, including the American Gaming Association (AGA), California Nations Indian Gaming Association, Nevada Congresswoman Dina Titus, and the Indian Gaming Association (IGA), among many others. 

Arguments made by the AGA and the IGA preview the brewing federalism battle and ultimate question of whether or not federal law via the Commodity Exchange Act and the CFTC that was borne out of it to oversee the futures and derivatives markets preempt state laws concerning gaming, and specifically, sports gambling. Wrote the IGA:

The IGA strongly urges the CFTC to make it clear that Sports Contracts are prohibited from being listed or made available for clearing or trading. Trading of Sports Contracts is gaming, violates state and federal law and is contrary to public policy for various reasons. Importantly, allowing Sports Contracts to be listed and traded will interfere with the sovereign right of tribes and states to exercise their police power to regulate gaming within their respective territories — a right long recognized by courts throughout the United States. Additionally, listing and trading Sports Contracts would decimate the value of the bargained-for-exchange made between tribes and states in their gaming compacts when tribes agree to share their gaming revenues — contributing billions to state governments — in exchange for substantial exclusivity over sports betting in their state. Lastly, listing and trading Sports Contracts will siphon critically needed revenue that supports tribal and state governments and their citizens by providing an end-run around tribal and state regulation of sports betting. Moreover, they directly violate the Commodity Exchange Act (“CEA”), and the plain language of the CFTC’s implementing regulations because they involve gaming and violate state and federal laws. Any determination that Sports Contracts comply with the CEA would therefore run afoul of the plain text of the CEA and its implementing regulations.

Federal law does preempt state law according the U.S. Constitution’s Supremacy Clause, but whether it does in the circumstances at issue here, well, that part is up for discussion and debate.  

Emboldened recently following one court victory and the addition of political clout, Kalshi probably believes in its position and that its activity in Nevada is lawful — or at least it seems unlikely to cede any ground at this stage to a state-based agency. 

This Nevada-Kalshi showdown may well be an appetizer for the main course, which is likely to materialize in the next couple months, once the CFTC makes its own determination about whether or not sports-events contracts are lawful federally.