CFTC can't protect! Polymarket is banned in Nevada, the crackdown in all 50 states of the United States begins

Nevada judge temporarily bans Polymarket from offering sports contracts, with a 14-day temporary restraining order hearing on February 11. Polymarket claims exclusive jurisdiction of the CFTC, but the court rules that federal preemption does not apply. Nevada alleges unlicensed operation threatens regulatory integrity, making it impossible to prevent underage participation and event manipulation.

Federal Preemption Claims Hit Roadblock in State Court

(Source: Nevada Court)

Polymarket argues that its contracts are federally regulated, claiming it “operates a federally designated contract market under the exclusive jurisdiction of the Commodity Futures Trading Commission.” The core of this argument is the principle of federal preemption in the U.S. legal system: when federal law conflicts with state law, federal law takes precedence. Polymarket believes that since the CFTC has approved its operation as a contract market, states have no authority to restrict its business through gaming regulations.

The state counters that Nevada law and licensing standards still apply when offering these contracts to residents. Nevada’s position is that the sports betting contracts offered by Polymarket are inherently sports gambling, which has always been within state jurisdiction. CFTC approval does not override Nevada’s constitutional authority over gambling activities within its borders.

In issuing the temporary restraining order, the court indicated that, at least for now, it does not believe federal law prevents Nevada from taking action. Judge Woodbury wrote: “The issue of federal preemption… is complex and rapidly evolving. For now, persuasive legal authority favors against applying federal preemption in this context.” He found the arguments in prior related litigation compelling. This ruling marks a significant challenge to the authority of the CFTC’s regulation.

The order targets the entity behind Polymarket, Blockratize, and related defendants, including QCX LLC operating under the name Polymarket US and Adventure One QSS, Inc. operating under the Polymarket name. Judge Woodbury approved a renewed unilateral temporary restraining order, which will last 14 days, with a preliminary injunction hearing scheduled for February 11. This 14-day window will determine the course of this legal battle.

As this dispute unfolds, Washington is gradually accepting that prediction markets need clearer regulation. Just last week, CFTC Chair Michael Selig announced that the agency is drafting new rules for prediction markets, as platforms like Polymarket and Kalshi, which allow traders to bet “yes” or “no” on everything from politics to pop culture, have attracted billions in trading volume.

Nevada Accuses Unlicensed Operation Threatening Regulatory Integrity

This ruling largely hinges on the agency’s assertion that unlicensed operators undermine Nevada’s strict control over the gambling market. Judge Woodbury stated: “The harm caused by evading Nevada’s comprehensive regulatory framework and strict licensing standards is direct, irreparable, and cannot be fully remedied through monetary damages.” This legal language reveals Nevada’s core concern.

Nevada, as the global gambling hub, has built its regulatory system on a rigorous licensing regime. All operators providing gambling services in the state must obtain a license from the Nevada Gaming Control Board and undergo ongoing oversight and audits. This regulation encompasses financial transparency, prevention of underage participation, identification of problem gamblers, and ensuring the fairness of events.

The court notes that Nevada asserts that, without jurisdiction, it cannot address enforcement gaps, including ensuring that individuals who might influence sports outcomes through betting are prevented from doing so, and that minors are barred from participating in sports contracts. These specific vulnerabilities are highly sensitive. The first involves the risk of event manipulation: if athletes, coaches, or referees can bet on Polymarket and profit from manipulating results, the integrity of sports competitions is at grave risk.

The second concerns protecting minors. Traditional gambling operators implement strict age verification, but Polymarket, as a decentralized platform, raises questions about whether its age verification mechanisms are sufficiently rigorous. Nevada worries that, if Polymarket is unregulated by the state, minors could easily bypass restrictions and participate in sports betting, leading to social issues.

Nevada’s Three Major Enforcement Concerns

Event Manipulation Risk: Inability to ensure athletes, coaches, and insiders do not bet and manipulate outcomes

Minor Protection: Lack of state regulation makes it difficult to prevent minors from participating in sports betting

Regulatory System Integrity: Unlicensed operation undermines Nevada’s decades-old gambling oversight framework

This decision marks an early stage in the broader tug-of-war between state gambling regulators and platforms that market sports contracts as financial products rather than wagers. Nevada’s victory could encourage other states to take similar actions, creating a 50-state crackdown on Polymarket.

Gambling vs. Financial Product Classification Dispute

The core dispute between Polymarket and Nevada centers on how to classify its services. Polymarket insists it offers “event contracts,” which are financial derivatives and should be regulated by federal agencies like the CFTC. Nevada, on the other hand, argues that regardless of the label, betting on sports outcomes is sports gambling and must comply with state gaming laws.

This classification debate is not semantic; it involves fundamental legal framework differences. If deemed a financial product, Polymarket only needs to comply with CFTC regulations, avoiding the need to obtain individual state gaming licenses. This model is similar to stock exchanges, where the NYSE does not need licenses in all 50 states. But if classified as gambling, Polymarket must obtain licenses in every state where sports betting is permitted and undergo ongoing state regulation.

From a business perspective, the compliance costs differ vastly. Securing a state gaming license can take months or years, costing hundreds of thousands of dollars, plus ongoing regulatory fees. If Polymarket is forced to license in all 50 states, operational costs could skyrocket, potentially making its business model unviable. This is why Polymarket is vigorously asserting federal preemption.

CFTC Chair Michael Selig announced last week that the agency is drafting new rules for prediction markets, indicating federal efforts to establish a clear regulatory framework. However, until new rules are finalized, a regulatory gray area remains between federal and state jurisdictions. Nevada’s ban could accelerate rulemaking but might also trigger more intense legal battles between federal and state authorities.

Polymarket attracted billions in trading volume during the 2024 US election cycle, with its predictions sometimes outperforming traditional polls, supporting its positioning as a “financial product.” However, when it comes to sports events, the line with gambling becomes even more blurred. Predicting political outcomes can be seen as aggregating public information, but predicting sports results is more akin to traditional betting.

February 11 Hearing Will Decide Polymarket’s US Fate

The 14-day temporary restraining order is only a pause; the real showdown will be at the preliminary injunction hearing on February 11. There, Polymarket will have the opportunity to present full legal arguments, asserting that CFTC’s exclusive jurisdiction should exclude state law. Nevada will need to further demonstrate that its regulatory interests outweigh federal preemption.

The outcome of this hearing will have far-reaching implications. If the court ultimately sides with Nevada, Polymarket faces two options: apply for a Nevada gaming license and accept state regulation, or exit the Nevada market entirely. Given Nevada’s central role in the US gambling industry, withdrawal would significantly weaken Polymarket’s market position and brand.

More concerning is the risk of a domino effect. If Nevada succeeds in banning Polymarket, other states may follow suit. States like New York, New Jersey, and Pennsylvania, with mature sports betting industries, have incentives to protect their existing licensing regimes from unlicensed operators. If Polymarket is banned in multiple states, its US operations could be fundamentally crippled.

For the broader prediction market industry, this case sets an important precedent. Competitors like Kalshi are closely watching. If courts favor state authority, the entire prediction market industry may need to reassess its US business model. The advantages of decentralization and federal regulation could be offset by the complexities of state licensing.