A Clash between State Laws and Federal Markets: The Sports Betting Showdown
Sports Organizations Protesting Sports-Related Deals in Betting Platforms
The world of U.S. casinos has been set ablaze with concerns over the contracts offered by federally governed prediction markets. A pair of influential casino trade groups - the Nevada Resort Association and the Casino Association of New Jersey - have penned stern letters to the Commodity Futures Trading Commission (CFTC), voicing their worries that these contracts could endanger local economies and ultimately cause state-regulated gambling to falter.
Venturing into Controversial Territory
At the heart of the controversy are contracts giving users permission to wager on sports events, such as betting on Florida winning the NCAA men's tournament, through platforms like Kalshi and Crypto.com. While the practice of traditional sports betting is tightly regulated at the state level, these federally-approved contracts find a foothold beyond strict state control.
Casinos aren't playing games when they state their concern. Virginia Valentine, head of the Nevada Resort Association, fears that, "Allowing for sports wagering to happen outside of state-regulated channels puts citizens at risk" and poses a significant danger to the critical economic support gaming provides. The gaming industry drives 43% of Nevada's GDP and offers employment to over a quarter of the state's workforce.
Similar sentiments have emerged from New Jersey's casino industry, which highlights their concerns about the potential impact on citizens, local economy, and consumer welfare.
The Battle for Control
New Jersey operators have pointed out that they must adhere to stringent regulations, yet these federally-approved markets are operating outside the established limits. Enforcing rules like bans on cryptocurrency wagering and betting on in-state college games has proven to be challenging.
The state's casino group also highlighted New Jersey's critical role in striking down PASPA in 2018, which opened the doors for the modern era of legal sports betting. Since then, the state has generated over $100 million in tax revenue from sportsbooks and implemented responsible gaming policies in keeping with state law.
A Nationwide Standoff
The CFTC has received similar concerns from over 20 organizations, including Native American tribes, commercial operators, and Major League Baseball. While prediction markets initially spearheaded contracts on politics and economics, their swift expansion into sports has sparked a renewed debate.
The Regulators Move In
Prediction markets have long been on the watchlist of regulators. This week, Maryland mandated Kalshi, Robinhood Derivatives, and Crypto.com to dismantle their online sports event prediction markets. Joining Maryland are five other states - New Jersey, Nevada, Ohio, Illinois, and Montana - that have already issued similar warnings to at least one of the concerned entities.
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Overall:
The current regulatory landscape for sports-related event contracts in the U.S. is experiencing strain between federal oversight and state gambling laws. The following is a summary of key aspects:
Federal Regulatory Status
- CFTC Oversight & Market Expansion: Through the Commodity Exchange Act, federally regulated prediction markets like Kalshi and Crypto.com offer sports event contracts nationwide, evading state gambling regulations.
- Kalshi’s Growth: During the NCAA Tournament, Kalshi reported a handle of $249 million, and $86 million during The Masters, signaling swift expansion.
Casino Industry Response
- Lobbying Against Federal Encroachment: MGM CEO Bill Hornbuckle warns that unchecked prediction markets could trigger an influx of federal intervention.
- Legal Challenges: States like New Jersey have sought to block prediction markets, while industry groups call these contracts questionable for circumventing state taxes and problem gambling safeguards.
- Regulatory Pushback: Six states issued cease-and-desist orders against Kalshi in 2025, aiming to protect state-regulated sportsbooks.
Key Implications
- Market Disruption: Prediction markets pose a threat to state gaming revenue by functioning without equivalent taxes or licensing fees.
- Legal Uncertainty: The delayed CFTC roundtable and pending D.C. Circuit Court ruling on Kalshi's political contracts add to the regulatory path's ambiguity.
- Operational Divide: Federally compliant platforms exploit regulatory arbitrage, while state-licensed operators demand parity or stricter enforcement.
- The Nevada Resort Association and the Casino Association of New Jersey, fearful of federal contracts allowing users to wager on sports events, have written letters to the Commodity Futures Trading Commission (CFTC) expressing concerns about potential risks to local economies and the future of state-regulated gambling.
- Virginia Valentine, the head of the Nevada Resort Association, believes that these contracts, if unchecked, could put citizens in danger, especially considering the significant economic support the gaming industry provides to Nevada, accounting for 43% of its GDP and employing over a quarter of its workforce.
- Operators in New Jersey, a state critical in overturning PASPA in 2018 to open the doors for the modern era of legal sports betting, have expressed concern about federally-approved markets operating outside the established limits, making enforcement of rules like bans on cryptocurrency wagering and betting on in-state college games challenging.
