Regulators in eleven states have issued cease and desist orders against companies running prediction market apps. Officials argue they are unlicensed betting platforms that rob states of revenue.
Prediction market apps allow betting on everything from specific phrases the President might utter to who will win the next golf championship. These apps are regulated by the federal Commodity Futures Trading Commission (CFTC).
But the Nevada Gaming Control Board, which regulates and enforces gambling laws in Nevada, says states should be involved. Board Chairman Mike Dreiser appreciates the evolving technology but believes prediction market apps should adhere to Nevada's gambling laws.
"We always want our licensees to be able to offer a cutting edge, compelling, fun gaming experience," said Dreiser. "We have absolutely no problem with any technology, including any form of prediction product, that aligns with the laws of the state of Nevada."
In February, the board filed a "civil enforcement action" against Kalshi, saying its "unlicensed wagering" was in violation of state law. The action stated that the board is seeking to "uphold the integrity of a thriving gaming industry."
Nevada is one of 11 states to take legal action against the apps, including Arizona and Montana, in the Mountain West.
But some believe the states are concerned about getting their cut.
In March, Nevada collected $93 million in taxes from gambling, according to the latest data from the board. But unlicensed prediction market apps generate billions of dollars annually, according to industry experts, while avoiding state tax structures related to gambling.
"The states are worried about their revenue," said Nick Bransfield, a prediction market researcher with Kingston Chase Consulting. "I understand the state's point of view, but at the same time, I don't think you can stop this innovation."
The CFTC has pushed back against various states. The Commission stated it would "safeguard its exclusive regulatory authority" with a legal action against Arizona and two other states, which filed criminal charges against the prediction market app Kalshi.
The legal wrangling was a point of discussion at a prediction market app developers conference in Las Vegas in April.
John Aristotle Phillips, a keynote speaker at the conference, said he doesn't view prediction market apps as gambling.
"I don't think it has a lot in common with gambling. I think it has a lot in common with the stock market.".
Phillips sparred with the federal government in 2014 when starting PredictIt, one of the first prediction market apps.
"It was growing very, very quickly," he explained. He believes the small-dollar app caught the feds' eye when it started to go viral.
"They're not allowed to take it away on that basis," said Phillips. "And that is what the Fifth Circuit Court of Appeals determined. And this was the precursor for a lot of what's going on today."
The apps made headlines recently after a U.S. Special Forces soldier was accused of placing a wager using classified information about the removal of Venezuelan leader Nicolas Maduro and coming away with $400,000.
Phillips said there are ways to place guardrails on prediction markets to help curb insider trading.
"The way to nip it in the bud, and create a deterrent for anybody who's thinking of doing insider trading is to have identity verification and a position limit," said Phillips.
Lawmakers recently introduced the Event Contract Enforcement Act which aims to curb wagers on war and terrorism events, and the PREDICT Act to place limits on members of Congress' ability to use prediction market apps. And, the POINTS ACT was introduced as the first measure which would provide federal funding for gambling addiction.
In Nevada, a judge granted a temporary ban on the Kalshi app from operating without a license. Kalshi responded on social media stating that while they disagreed with the ban, they will comply.
This story was produced by the Mountain West News Bureau, a collaboration between Wyoming Public Media, Nevada Public Radio, Boise State Public Radio in Idaho, KUNR in Nevada, KUNC in Northern Colorado, KANW in New Mexico, Colorado Public Radio, KJZZ in Arizona and NPR, with additional support from affiliate newsrooms across the region. Funding for the Mountain West News Bureau is provided in part by the Corporation for Public Broadcasting and Eric and Wendy Schmidt.
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