Close the “Investment Contract” Sports Gambling Loophole

Close the loophole allowing sports gambling via purported “investment contracts” or prediction markets.

What it does: Defines sports event outcome contracts as sports wagers for state-law purposes—regardless of whether they are labeled “investment contracts,” “event contracts,” or “prediction markets”—unless offered by a licensed operator under the state’s sports wagering framework.

Prevents regulatory arbitrage: consumers should not lose state protections simply because a sports bet is re-labeled as a financial instrument.
Keeps core safeguards attached to the product: state wagering regulation typically requires age verification, geolocation, integrity monitoring, and responsible-gambling controls that may not apply the same way outside the licensed sportsbook framework.
Clarifies enforceable definitions: a clear statutory classification reduces litigation over labels and supports consistent enforcement against unlicensed offerings to in-state users.
Supports coordinated enforcement: the bill empowers the Attorney General and Commission to act and to coordinate with federal regulators where appropriate.
Protects tax, transparency, and integrity goals: keeping sports-outcome wagering inside the licensed system preserves reporting, taxation, and market-integrity oversight.

Notes

Nevada: the Nevada Gaming Control Board publicly addressed a cease-and-desist order sent to Kalshi in March 2025. NGCB statement (PDF).
Massachusetts: the Massachusetts Gaming Commission has publicly referenced legal action involving Kalshi and Robinhood. MGC news item.
Multi-jurisdiction: the CFTC has proposed amendments to its event-contract rules (17 C.F.R. Part 40 / Rule 40.11) to clarify which event contracts “involve gaming,” providing important context as states move to ensure sports-outcome contracts remain subject to state sports-wagering safeguards. CFTC proposed rule (FR Doc. 2024-12125).

Sources

Notes to Drafters

Suggested target values (starting point):
- Civil penalties: $100,000 per day is an appropriate “unlicensed offering” deterrent baseline because the expected upside can be large and rapid; pair with injunction authority.
- Rulemaking cadence: consider requiring the Commission to publish an updated list of covered products/entities at least quarterly to keep pace with product changes.
This issue can implicate federal commodities/securities law. This draft is written as a state-level prohibition on offering sports-event outcome contracts to persons located in the state unless authorized under state sports wagering law.
If federal preemption is a concern, consider drafting this as (1) an explicit state “illegal gambling” classification plus (2) a directive to the Attorney General to pursue available enforcement and to coordinate with federal regulators.

Draft Bill Text

CASPR is available for legal and technical support adapting this bill to specific state contexts.

Download as Word .docx

A BILL FOR AN ACT

RELATING TO GAMBLING; PROHIBITING THE OFFER OR SALE OF SPORTS EVENT OUTCOME
CONTRACTS TO PERSONS LOCATED IN THIS STATE EXCEPT AS AUTHORIZED UNDER STATE
SPORTS WAGERING LAW; DEFINING CERTAIN EVENT CONTRACTS AS SPORTS WAGERS FOR
STATE LAW PURPOSES; PROVIDING FOR ENFORCEMENT AND PENALTIES; AND PROVIDING
AN EFFECTIVE DATE.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF [STATE]:

SECTION 1. SHORT TITLE.
This Act may be cited as the "Sports Event Contract Prohibition Act".

SECTION 2. DEFINITIONS.
In this Act:
(1) "Attorney General" means the Attorney General of this State.
(2) "Commission" means the [STATE GAMING COMMISSION] or successor agency.
(3) "Person" includes an individual, partnership, corporation, association, trust, or other entity.
(4) "Sports event" means a professional, collegiate, Olympic, or other athletic event, match, or
contest, including any portion or statistic of such event.
(5) "Sports event outcome contract" means any contract, agreement, option, swap, security,
derivative, commodity transaction, or other instrument, regardless of label, that:
(A) provides for payment, settlement, or financial return based on the outcome of a Sports
event or occurrence of an event within a Sports event; and
(B) is offered, sold, traded, or made available to persons located in this State.
(6) "Sports wager" has the meaning given in [STATE SPORTS WAGERING LAW], and includes a
Sports event outcome contract for purposes of this Act.

SECTION 3. PROHIBITION; CLASSIFICATION.
(a) Prohibition. A Person shall not offer, sell, trade, facilitate, or advertise a Sports event
outcome contract to a person located in this State unless the Person is licensed and the
activity is authorized under [STATE SPORTS WAGERING LAW] and regulations.

(b) Classification. A Sports event outcome contract offered to persons located in this State
is deemed a Sports wager for purposes of State gambling law, regardless of whether the
contract is described as an "investment", "event contract", "prediction market", or similar.

SECTION 4. ENFORCEMENT.
(a) Authority. The Attorney General and the Commission may enforce this Act.

(b) Injunctive relief. The Attorney General may bring an action to enjoin a violation of this Act,
including to restrain the offer or sale of Sports event outcome contracts to persons located
in this State.

(c) Coordination. The Attorney General and the Commission may coordinate with relevant
federal regulators and other states regarding enforcement.

SECTION 5. PENALTIES.
(a) Civil penalty. A Person who violates this Act is subject to a civil penalty of up to
[$100,000] per day of violation. Each day a Sports event outcome contract is offered to
persons located in this State constitutes a separate violation.

(b) Additional remedies. Penalties under this section are in addition to any other remedies
available under State law, including remedies for unlawful gambling.

SECTION 6. RULEMAKING.
The Commission may adopt rules to implement this Act, including rules to clarify the scope of
"Sports event outcome contract" consistent with the purposes of this Act.

SECTION 7. SEVERABILITY.
If any provision of this Act or its application is held invalid, the invalidity does not affect
other provisions or applications of this Act that can be given effect without the invalid
provision or application.

SECTION 8. EFFECTIVE DATE.
This Act takes effect on [DATE].

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