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Read Full BioPrediction markets continue to cause controversy in the US. As investors back platforms such as Kalshi, Polymarket, and Crypto.com, state regulators and tribal groups are sending cease-and-desist letters and filing lawsuits.
The main sticking point is whether sports event contracts fall under federal jurisdiction, as licensed by the Commodity Futures Trading Commission (CFTC), or whether they should be classified as sports betting and subject to the same state regulations as sportsbooks.
Every week brings new partnerships and investments, as well as new legal challenges and outspoken opponents. For example, the NHL publicly endorsed Kalshi and Polymarket last week, but at the same time, New York sent a cease-and-desist letter to the former.
Meanwhile, Crypto.com has launched a partnership with Trump Media and Truth Social, but at the same time has pulled its markets from Nevada in response to an unfavorable court ruling.
We spoke with attorney Stephen Piepgrass to discuss the latest legal battles and asked him to predict what the future holds for prediction markets. Piepgrass is a partner at Troutman Pepper Locke and leads the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) practice. He is based in Richmond, Virginia, and closely follows the gaming industry.
CasinoBeats:
New York sent a cease-and-desist letter to Kalshi last week, months after seven other states had already done so. Were you surprised by that? Do you see other states joining this fight?
Stephen Piepgrass:
It was surprising. It seemed to me that we’d already had that first wave of cease-and-desists, Kalshi had acted, and most of the other states were just sitting on the edge, watching to see what happened. I would have predicted they’d stay on the fence.
The fact that New York did this is interesting — they’re influential, and other blue states with similar politics may follow. What Kalshi did was very calculated and smart. By immediately filing their own action in court, within days, they sent a message to other states: “If you’re thinking about sending a cease-and-desist letter, just know you’ll be in litigation within a matter of days — be ready for that.” That’s probably an effort to head off any further letters from being sent.
CasinoBeats:
Do you see New York as a more significant case than others?
Stephen Piepgrass:
Yes, I think it may be. It could well be the first court to address this question since any court has come out against Kalshi. For that reason alone, it’s going to carry a lot of weight. The court will have to consider what Maryland did versus what earlier courts did in Nevada and New Jersey. And because New York is a state with huge commerce and well-respected judges, their decisions tend to be influential. So for both those reasons, it could be a real bellwether.
Based on the Stipulation & Order entered by the Court this week, it looks like Kalshi has reached an agreement with New York, whereby the State has agreed to hold off on enforcement action against Kalshi until a decision is reached by the Court on the Motion for Preliminary Injunction. Briefing on that motion should be complete by December 15, with a hearing to follow.
CasinoBeats:
It seems judges have been inconsistent so far — with Nevada and New Jersey granting injunctions, but Maryland and Nevada (with Crypto.com) refusing. Do you think the tide is changing?
Stephen Piepgrass:
We’re all watching New York carefully to see what happens there. If that judge follows the same course that New Jersey did, then this narrative of “the tide has turned” goes away.
What’s really shaping up is a potential circuit split, and if that happens, this whole question could end up at the Supreme Court. There are interesting legal issues — Supremacy Clause questions and competing regulators — both trying to wear the same hat in different contexts. Whether the Maryland case is a canary in the coal mine and we’ll see more courts going that direction remains to be seen.
CasinoBeats:
So right now, it’s basically open to interpretation?
Stephen Piepgrass:
Correct. There’s no clear written law on whether these markets are legal or not — it’s very much up to each judge’s interpretation. But in the meantime, because there are injunctions or agreements from states not to prosecute, it’s still a fairly safe market for operators and potential investors. They just have to be very careful and pay close attention to what happens next.
CasinoBeats:
How long do you think it will be before we get a definitive decision — maybe from the Supreme Court?
Stephen Piepgrass:
If I knew that, I should enter the prediction market myself. Best guess? A year and a half, maybe two years for these cases to work their way through the courts, for a circuit split to develop, and then for the Supreme Court to decide to take it. So, easily two years — maybe more. We’re going to have a significant period of time where operators, investors, and the public are operating in the gray.
CasinoBeats:
Companies like Crypto.com have withdrawn from Nevada after failing to obtain an injunction, while Kalshi immediately fought back. Which approach do you think makes more sense?
Stephen Piepgrass:
So many of these things are business decisions. At the end of the day, Crypto.com may have said, “Let Kalshi fight this battle, and we’ll come back once it’s resolved,” rather than spend hundreds of thousands — if not millions — on legal fees. They might have looked at the procedural posture and decided it wasn’t worth fighting right now.
CasinoBeats:
Do you think they’ll be in a better position to fight those battles now that they have Trump Media in their corner?
Stephen Piepgrass:
It never hurts to have a very loud mouthpiece supporting your position.
CasinoBeats:
Right — and the news that Truth Social will integrate the platform’s prediction markets could also have a significant impact.
Stephen Piepgrass:
Exactly. It’s becoming more and more embedded in the culture. And you also have the CFTC, which the Trump administration still has influence over. There’s a political dynamic running in the background here, too — very interesting.
CasinoBeats:
Kalshi’s main argument is about preemption — that the CFTC has exclusive jurisdiction. Do you think that argument will hold up?
Stephen Piepgrass:
I haven’t seen their argument change much, even after Maryland and Nevada. A lot depends on how much it resonates with a particular judge. Courts don’t act in a vacuum. Things like the NHL partnering with Kalshi, or licensed sportsbooks jumping into the market, can influence them.
As prediction markets become more mainstream, that cultural shift can affect rulings. If this becomes part of the culture, it would be profoundly disruptive to rule against Kalshi or others in this market. So, in some ways, the courts lead the charge — but in other ways, culture influences the courts too.
CasinoBeats:
Do you think the CFTC will ultimately have authority over this, or will it be left to the courts?
Stephen Piepgrass:
The interplay between the two will be very interesting. The federal government shutdown really put a pause on CFTC action — and also on efforts to influence it. Right before the shutdown, six senators wrote an open letter to the CFTC, and there seemed to be momentum building against giving it authority in this space. That’s mostly gone now — Congress has other priorities.
If the CFTC issues regulations and gets into the practical side — like how to apply responsible-gaming principles to prediction markets — then the argument for preemption gets stronger, and it becomes harder for states to say, “No, this is our jurisdiction.” So, once the shutdown ends, that may well be the direction things head.
CasinoBeats:
It seems like Kalshi is very keen to fight these battles in federal courts. But a lawsuit in Massachusetts has been moved back to state court. Do you think that if these cases are heard in state courts rather than federal courts, it will have a negative impact on the companies?
Stephen Piepgrass:
Yes, this is something those of us who practice in the regulatory space deal with all the time. When states are the moving party in a case, they often manage to keep it in state court — and it usually can’t be removed to federal court, because states aren’t treated as having separate citizenship for purposes of removal jurisdiction.
Because of that, there’s a common sentiment among companies that regularly face state regulators — and sometimes it’s true — that state courts tend to be more deferential to state regulators, to the state attorney general, and to gaming commissions than federal courts would be.
In this situation, you’re really balancing the interests of a federal agency against the interests of a state. I do think there’s somewhat of an advantage to state courts for the regulators. They’re there all the time, they’re used to practicing in that environment, and the courts often show deference to them.
Sometimes you have state court judges who’ve spent time in the Attorney General’s office before being appointed or elected to the bench. Then you have the AG’s office representing the state in front of that same judge. That can be a tough dynamic to overcome if you’re a defendant — or if you’re on the opposing side of the state, whichever side of the “v.” you’re on.
CasinoBeats:
Do you see the NBA betting scandal having an effect on how this plays out?
Stephen Piepgrass:
Yes, absolutely. Just like the NHL partnership with Kalshi gave the space some legitimacy, the NBA scandal has had the opposite effect. It’s probably giving regulators pause — do they really want to open up this market everywhere and rely on a federal regulator that’s new to gambling oversight, especially when we’ve just seen what can go wrong? There are countervailing trends here, and they pull in different directions if you’re a court.
CasinoBeats:
Do you think other leagues will follow the NHL’s lead and partner with these platforms?
Stephen Piepgrass:
Had the NBA scandal not happened so soon after the NHL announcement, the NHL might have been the break in the dam — and then the floodgates open. But now, I think other leagues are going to hesitate. Even the NCAA was considering allowing college athletes to gamble on professional sports, and it sounds like they may now be second-guessing that. There’s going to be a lot of heart-searching on this issue because of what’s happened in the NBA.
CasinoBeats:
So what’s your overall prediction for prediction markets? What will the landscape look like in a few years?
Stephen Piepgrass:
I think this market is going to continue to develop in the gray. Participants are used to operating there and are comfortable with it. We may reach a point where prediction markets become so common that Americans are simply used to participating — and it’ll be very hard to push that back. Ultimately, that’s probably what companies like Kalshi are betting on — and they may be right.
