The Nevada Gaming Control Board (NGCB) has become the first state to take Polymarket to court, as it argues the prediction market is breaking the state’s wagering laws.
According to a release from the NGCB published Friday, the regulator filed a civil enforcement action against Polymarket in Carson City District Court, in order to receive a declaration and injunction “to stop Polymarket from offering unlicensed wagering in violation of Nevada law.”
ngcb-files-civil-enforcement-action-against-polymarketPolymarket is operational in the U.S. for users who have been rolled off its waitlist, but is not yet fully available for all.
This case marks the first time a court will rule on Polymarket’s legality since its return to the U.S. in July of last year. Rival Kalshi has been the subject of lawsuits across the country, though most of those are federal cases in which Kalshi sued a state.
The state’s interactions with Polymarket appear to follow a different pattern to Nevada’s lawsuit with Kalshi. In that case, the state sent a cease-and-desist to Kalshi, which then sued in federal court to prevent the state from enforcing the order.
State: Polymarket US offers illegal wagering
The state said that sports event contracts, which Polymarket US offers, are a form of illegal wagering.
“Polymarket operates a derivatives exchange and prediction market where it offers event contracts for sale,” the NGCB wrote in the press release. “These products are offered for sale on Polymarket’s mobile app and are made available to people in Nevada.
“The Board considers offering sports event contracts, or certain other events contracts, to constitute wagering activity under NRS 463.0193 and 463.01962 and, therefore, entities offering such event contracts must be licensed.”
It added that gaming businesses in the state must be licensed.
“Nevada’s public policy, as expressed by the Legislature, is that the gaming industry is vitally important to the economy of the state and the general welfare of the inhabitants and therefore must be licensed, controlled, and assisted to protect the public health, safety, morals, good order, and general welfare of the inhabitants of the State,” it wrote.
As Polymarket has not yet gone to court to defend the legality of its sports event contracts, its exact arguments are not yet known. However, Kalshi has generally argued that its own contracts are legal because only the federal Commodity Futures Trading Commission (CFTC) has jurisdiction over contracts offered by exchanges registered with the CFTC, and that therefore state gambling laws do not apply to the business as they are preempted by federal law.
The case would be the second time a state authority has sued a prediction market in state court over what it argues is illegal wagering. Massachusetts Attorney General Andrea Campbell sued Kalshi in September.
Polymarket could sue to move to federal court
Like Kalshi in Massachusetts, Polymarket may attempt to sue to have the case moved from state court to a federal court, as federal judges are often seen as more likely to rule in favor of federal law preempting state law.
However, the relevant federal court for this case – the U.S. District Court for the District of Nevada – ruled against prediction markets Crypto.com and Kalshi last year. Judge Andrew Gordon argued that sports event contracts were not “swaps” and that therefore any preemption of state law that might apply to other swaps would not apply. The court directed both entities to stop operating in Nevada.
In order to have the case heard in federal court, Polymarket would likely aim to prove the case meets the tests for the “doctrine of complete preemption” – which can be a high standard to meet.
Complete preemption applies when Congress has specifically set out a cause of action — that is, a system where parties can sue in federal court for violations of the law. It must also have intended this cause of action to be the only way to sue for breaches of the law in question.
In Massachusetts, a federal judge ruled that Kalshi failed to meet the standard for complete preemption, and so its case is currently being decided by the state court.
