New York sues Polymarket as federal regulators weigh rules

New York's Polymarket lawsuit opens a second state front as CFTC rules wait

Bill Hornbuckle did not mince the sequence. Nevada regulators told MGM directly: enter prediction markets, and your casino licence is at risk. MGM walked away. That was not a close call for a company with nine Strip properties and Bellagio on the ledger.

What Hornbuckle described at the Global Gaming Expo this week is the operative condition for every brick-and-mortar operator sitting on a state gaming licence right now. The CFTC has sent two rules to the White House for review — one that would bring event contracts inside the swap definition, one that would carve casino-style gambling products back out — but neither rule is final. OIRA review takes time, public comment takes more, and in the space between the proposal and the rule, state regulators are drawing their own lines.

Nevada's warning to MGM is the clearest example of how that gap is being filled. The CFTC's preemption argument rests on the Commodity Exchange Act's exclusive jurisdiction over swaps. If event contracts are swaps, states cannot touch them. But the Ninth Circuit has already found that federal commodities law does not prevent states from enforcing their own gambling statutes against prediction market operators. Kalshi was removed from Nevada in August on exactly that basis. The rule the CFTC sent to the White House this week would attempt to override that outcome by reclassifying the underlying product — but the Ninth Circuit's reasoning did not turn on product classification alone.

Tom Reeg at Caesars put the competitive problem plainly. He has lived through daily fantasy sports operating in a grey market, watched PASPA fall, and seen DraftKings and FanDuel collect the first-mover dividend that followed. He is prepared to enter prediction markets but only if he can do so without losing the licences that make Caesars Palace and Paris Las Vegas viable. That is not an ideological position. It is arithmetic.

DraftKings and FanDuel can run that calculation differently because they do not hold traditional casino licences in the same way. Hornbuckle's criticism — that prediction market platforms operate at 18, collect no state gaming taxes, and employ no one on a casino floor — is accurate as a description of the asymmetry, whatever its legal merit. Whether that asymmetry survives the CFTC's rulemaking is the question OIRA will send back to the public comment process, likely sometime next year.

New York's lawsuit against Polymarket, filed last week, extends the state enforcement picture beyond Kalshi. Two platforms, two states, overlapping legal theory. The CFTC has countersued Ohio and Tennessee. New Jersey has asked the Supreme Court to take the jurisdictional question. The Third and Ninth Circuits have reached conflicting conclusions.

The interim final rule the CFTC sent to the White House — the one carving casino-style products out of the swap definition — is the more immediately consequential of the two measures. Unlike a proposed rule, it can take effect before the comment period closes. The question courts will face is whether a definition drawn at the agency level can resolve a circuit split that has already produced contradictory judgments on the same statutory text.