A federal judge has denied Crypto.com an injunction that would have allowed the business to keep offering sports event contracts in Nevada even though the same judge granted a similar injunction to Kalshi in April.
Crypto.com sued the state in the U.S. District Court for the District of Nevada and filed for an injunction in June to block the Nevada Gaming Control Board from enforcing a cease-and-desist order issued in May against the company’s sports event contracts.
However, on Thursday the court revealed that it would not grant the injunction.
Same judge gave Kalshi similar injunction
The decision is notable because the same judge, Justice Andrew Gordon, had granted the injunction to Kalshi.
At the time, he said Kalshi had proved a likelihood of winning the case on the merits. He agreed with the prediction market’s claim that the Commodity Exchange Act gave the Commodity Futures Trading Commission (CFTC) “exclusive jurisdiction” over the contracts, and therefore state gaming laws did not apply.
Gordon noted in his decision on the Kalshi injunction that the CFTC could announce that it does not believe sports event contracts should be legal, at which point Kalshi’s argument would be much weaker. Earlier this week, the CFTC published a letter to regulated firms offering sports event contracts, noting that it had not yet made a decision on whether they were prohibited.
363e39f7-4f61-4e44-b456-383de40fa730“Right now I’m going to preserve the status quo, which is that these contracts are legal under Federal law, so requiring Kalshi to stop altogether and lose the goodwill or damage its reputation and to spend millions of dollars that may not be recoverable and potentially lose its designation as a CFTC-approved market, again, is enough for a short-term injunction, in my mind,” Gordon said then.
Crypto.com mostly made the same arguments as those made by Kalshi, including the one about “exclusive jurisdiction.”
It also made the case that while some people do gamble on the outcomes of sporting events, this does not mean that a contract on the outcome of these events is itself gambling.
The Crypto.com complaint appeared to be particularly reliant on the Kalshi decision, with the argument that the court should rule the same way on its case. It referenced Kalshi by name 38 times and urged the judge to use the Kalshi decision as precedent.
Did court rule sports event contracts not swaps?
The court has not yet published the full decision, so the exact reasons for the ruling are not yet known.
However, one possible reason for a denial would be if the judge may have determined that sports event contracts do not meet the definition of a “swap” – a type of financial product typically used for hedging risk – as defined in the Commodity Exchange Act.
The act says a swap must be “associated with a potential financial, economic, or commercial consequence.” Whether this refers to any event that is in some way associated with a financial outcome or whether the financial aspect must be of a certain level of significance to count has been a matter of debate between states and prediction markets.
In a post on social media site X, lawyer Daniel Wallach said he believed the court had determined that the sports event contracts offered by Crypto.com did not qualify as swaps.
A legal expert in commodity futures regulation told InGame that “the question of [whether] it’s swaps is central to the litigation.”
While Kalshi won an injunction in Nevada, it did lose its bid for an injunction in one other state — Maryland. In that case, the judge focused on the question of how far the CFTC’s “exclusive jurisdiction” really reaches when denying an injunction in August. The judge’s ruling said exclusive jurisdiction was intended to cover matters directly related to commodities law but was not intended to infringe upon state gambling laws.
Crypto.com will appeal
Crypto.com will appeal the decision not to grant the injunction in the U.S. Circuit Court of Appeals for the Ninth Circuit rather than immediately take down its sports contracts in the state.
“When two cases on the same issues before the same judge result in two completely different rulings, it guarantees a different result at the appellate level,” a spokesperson said in a statement sent to InGame.
“We remain steadfast that the contract we offer are swaps subject to the exclusive jurisdiction of the CFTC and we look forward to the next round following our appeal.”
When Kalshi received its injunction in April, Nevada did not appeal, meaning that the Ninth Circuit has yet to hear a case on the legality of sports event contracts.
