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Judge Gordon has flipped the script, per gaming attorney Daniel Wallach.
He offered his assessment of recent "preliminary" findings from one Nevada judge in his written decision pertaining to Crypto.com, one of the big entities looking to play a major role in the sports prediction market space.
And it goes much further than expected, according to Wallach.
Here is Wallach's summary of that decision (we suspect Crypto.com and other prediction markets will have a different take):
1) Contracts based on the "outcomes" of sporting events do not qualify as "swaps."
2) "Swaps" depend on the "occurrence" or "non-occurrence" of an "event" (as per the CEA). The key word being "EVENT."
3) "Outcomes" are not "events."
4) "The ordinary meaning of 'event' in terms of sports would be the sporting event itself, not who wins it."
5) "An ordinary American interpreting the word 'event' would conclude that the Kentucky Derby is an event. But who wins the Kentucky Derby is an outcome of that event, not a separate event in and of itself."
6) "If everything can be defined as an event, the statutory words would either have no meaning or have such a broad meaning that that they would render superfluous other portions of the CEA's definition of a swap."
7) "Crypto’s position would sweep nearly all sports wagering into the CFTC’s exclusive jurisdiction even though the states historically have regulated gambling through their police power."
8) "According to Crypto’s arguments and self-certification to the CFTC, nearly every sports bet would be a transaction in which payment is dependent on the outcome of a sporting event and is associated with a potential financial, economic, or commercial consequence. That cannot be a proper reading of the statute because that would mean that all sports wagering must be done on a DCM, and not at casinos, as the CEA forbids nearly all swap dealing and trading unless done on a DCM, except for certain market participants, none of whom are casinos or the average sports bettor."
9) "The factual distinctions Crypto makes between itself and a typical casino sports book do not distinguish Crypto’s event contracts from sports wagers at Nevada casinos when considered under the statutory definition of a swap. But casinos have openly operated sports books and accepted sports wagers on the outcomes of sporting events in this state and others both before and after the 2010 amendments to the CEA. And no one, including Congress and the CFTC, has suggested those bets are 'swaps' that had to be conducted on a DCM."
10) "Had Congress intended such a sea change in the regulatory landscape, it surely would have said so. The CEA’s language and legislative history show that Congress did not intend such a change and, to the contrary, did not want gambling to take place on CFTC-designated exchanges."
11) "Congress enacted the special rule granting the CFTC authority to determine whether swaps contracts in excluded commodities are contrary to the public interest. 7 U.S.C. § 7a2(c)(5)(C)(i). Among the types of contracts that Congress stated can be subject to this public interest review are contracts that 'involve . . . gaming.' Id. § 7a-2(c)(5)(C)(i)(V). And Congress set forth in the CEA that if the CFTC determines that a contract is contrary to the public interest under this rule, then that contract may not be 'listed or made available for clearing or trading on or through a registered entity.'"
12) "The CFTC made that public interest determination on a blanket basis when it promulgated 17 C.F.R. § 40.11(a), which prohibits DCMs from listing a swap based on an excluded commodity that “involves, relates to, or references . . . gaming.'"
13) "The CFTC’s decision to prohibit DCMs from listing gaming contracts is consistent with congressional intent to 'prevent gambling through futures markets.'" 156 Cong. Rec. S5902-01, S5906 (July 15, 2010) (statement of Sen. Lincoln). Legislators commented specifically on sports wagers on events like the Super Bowl or the Kentucky Derby as the type of 'supposed ‘event contracts’ that the CFTC had 'the power to, and should, prevent . . . because they exist predominantly to enable gambling.' Id. at S5906-07 (“It would be quite easy to construct an ‘event contract’ around sporting events such as the Super Bowl, the Kentucky Derby, and Masters Golf Tournament. These types of contracts would not serve any real commercial purpose. Rather, they would be used solely for gambling.”).
14) "The CFTC specifically stated that its 'prohibition of certain ‘gaming’ contracts is consistent with Congress’s intent to prevent gambling through the futures markets and to protect the public interest from gaming and other events contracts.'"
15) "Congress did not intend for gaming to be conducted on DCMs, and it defined swaps and enacted the special rule to achieve this intent. Thus, based on the statutory language and Congressional intent, Crypto’s contracts on the outcome of live events are not 'swaps' that fall within the CFTC’s exclusive jurisdiction in 7 U.S.C. §2(a)(1)(A). Crypto’s motions for judgment on the pleadings and for a preliminary injunction depend on its argument that the CFTC has exclusive jurisdiction over its event contracts as swaps on a DCM. Crypto is not likely to prevail on its argument that the CFTC has exclusive jurisdiction over Crypto’s event contracts, so I deny its motions for judgment on the pleadings and for a preliminary injunction."
What's next?
A) Crypto dot com will immediately appeal the ruling to the Ninth Circuit and seek a stay or an injunction pending appeal to keep Nevada regulators at bay during the pendency of the appeal (This could also be consented to by Nevada, as was the case in Maryland).
B) The appeal will likely be expedited, although with the CA9's case-load (the largest in the country, constituting more than 20% of all federal appeals nationwide) it could still take one year or more to get a decision.
C) Ironically, the later-filed Crypto dot com case will reach the Ninth Circuit long before Kalshi's case does.
D) It's even possible that the Ninth Circuit will decide the Crypto dot com appeal while the Kalshi case is still pending in the district court (since it's still in the discovery phase).
E) Kalshi's early preliminary victory in NV is in serious jeopardy because its sports contracts are also tied to event "outcomes."
F) But even putting aside the "swaps" issue, Judge Gordon's analysis is problematic for Kalshi on several of the other points as well (see his congressional intent analysis, which mirrors Judge Abelson's approach in the Maryland case. He also effectively invokes Rule 40.11(a)(1) as being consistent with the congressional intent behind the CEA and the statute's legislative history. This ruling may be a game changer -- at least in Nevada.
G) If Nevada turns completely, that will leave NJ as the lone clear victory (so far) for Kalshi.
H) That raises the stakes in Massachusetts, Ohio, and California -- which are up next.
- Chris Costigan, Gambling911.com Publisher
