Prediction Market Operators Under Pressure from Gambling Rules Seek a Remedy in Court

In one of the latest legal challenges facing prediction platforms, Polymarket has moved to block enforcement actions in Massachusetts, filing a lawsuit in federal court to contest the state’s effort to classify its event contracts as illegal gambling under local law. 

At the core of the dispute is whether Polymarket’s prediction markets, which allow users to put money against potential outcomes on events ranging from elections to sports, fall within the scope of state gambling statutes or should instead be treated as financial instruments operating across state lines. 

The filing comes amid a tougher run of court outcomes for prediction markets at the state level. Also in Massachusetts, a state judge on 6 Feb declined to stay a preliminary injunction barring Kalshi from offering sports event contracts unless it secures a state gaming licence, ruling that the product is subject to Massachusetts gaming laws. 

The previous day, a Nevada state judge declined to grant the Nevada Gaming Control Board’s request for an emergency order that would have immediately halted crypto exchange operator Coinbase’s event-based contracts in the state, leaving the issue to be decided at a later hearing. Polymarket faced a similar setback in Nevada in late January when a state court allowed a regulatory enforcement action against the platform.  

Institutional capital looks past regulatory noise 

Regulatory pushbacks have not slowed interest from trading firms. Jump Trading is set to take equity stakes in Kalshi and Polymarket in exchange for providing liquidity, positioning itself deeper within the market infrastructure of prediction platforms, Bloomberg reported on 9 Feb. 

The structure allows Jump to convert trading capacity into long-term exposure, securing a fixed stake in Kalshi and a scalable ownership position in Polymarket tied to the volume of liquidity it supplies in the US, according to Bloomberg.  

Sandmark has contacted Jump Trading and Polymarket to request comment on the reported arrangements.

Market makers play a central role in trading markets by continuously quoting prices and absorbing order flow, particularly during periods of heavy activity. That role is becoming increasingly important as volumes grow: Kalshi reported more than $9.5bn in notional trading volume in January. 

How states are framing prediction markets 

Massachusetts and Nevada are taking a broadly similar view of prediction markets when it comes to sports-linked contracts: if users are putting money at risk on the outcome of a sporting event, regulators consider that activity gambling rather than financial trading. 

In Massachusetts, courts have held that platforms offering sports event contracts fall under state gaming law and therefore require a licence from the Massachusetts Gaming Commission. 

Nevada has adopted an equally strict stance, with regulators and courts treating event-based contracts tied to sports as sports wagering subject to oversight by the NGCB, regardless of how those contracts are structured or labeled.  

In both states, the legal distinction is being drawn around the economic substance of the product rather than its financial or technological framing. 

Federal rules back in focus 

The developments come as US regulators signal a potential reset in how prediction markets are overseen. The Commodity Futures Trading Commission is reportedly preparing to update its regulatory framework for event-based contracts, a move that could test the balance between federal oversight and state gambling laws.