Louisiana, through its Gaming Control Board (LGCB), has recently intensified its scrutiny on sports-linked prediction markets, particularly those veering away from the established sports betting framework. The state’s firm stance was conveyed in a letter issued by Christopher Hebert, the LGCB chair, on December 5. This communication warned licensed sportsbooks and their affiliates that any “event contracts” related to games and player performances, marketed under terms like “contracts,” “swaps,” or “markets,” will be treated as illegal gambling if offered outside the state’s regulated sports betting framework.
Hebert clarified the position that such products fall under Louisiana’s definition of sports wagering. He stressed that merely rebranding these as financial instruments does not alter their classification under local law, thereby requiring a state license to operate legally. This statement is particularly aimed at operators engaging with federally regulated prediction exchanges such as Kalshi or Crypto.com’s derivatives arm, emphasizing that any product allowing stakes on sporting events is considered sports wagering under Louisiana law.
This latest move by Louisiana highlights a critical delineation between markets overseen by the Commodity Futures Trading Commission (CFTC) and those regulated at the state level under Louisiana’s gaming laws. The LGCB holds exclusive authority over gaming within its jurisdiction, reinforcing that contracts based on game outcomes align with the state’s gambling definitions. Even if such contracts are traded on a CFTC-regulated platform, they require compliance with state-level betting regulations, including licensing, Know Your Customer (KYC) protocols, and responsible gambling measures.
The ramifications of this development are significant for major industry players like DraftKings, FanDuel, and Fanatics. These companies, all holding licenses for mobile betting in Louisiana, have explored or implemented sports event contracts through prediction-style offerings in other parts of the US. The LGCB’s warning serves as a reminder of potential licensing risks if these products are considered illegal wagering in any state.
Other states, including Illinois, have also expressed concerns, urging operators to evaluate how their activities might affect licensing across jurisdictions. However, Louisiana’s stance remains focused on in-state operations, though the message is unequivocal: directing Louisiana users to sports event contracts via prediction exchanges will be regarded as unauthorized gambling.
This regulatory crackdown is part of a broader national debate over the jurisdictional authority concerning prediction markets. Federally, most event contracts, including those tied to elections or economic data, are seen as derivatives under CFTC regulations. However, sports-related contracts have become contentious. A recent ruling by a Nevada judge found that Kalshi’s sports markets do not qualify as “swaps” under the Commodity Exchange Act, thus allowing them to be regulated as gambling under state laws. This decision removed a previous injunction protecting Kalshi from Nevada’s enforcement, thus enabling state regulators to address its sports products as potential illegal betting.
Other states like Maryland have voiced similar concerns, challenging the notion that listing sports contracts on a CFTC-regulated venue can bypass local gambling statutes. Illinois’s regulatory bodies have cautioned their licensees against engaging with products that mimic betting activities, regardless of their labeling as financial instruments.
In this complex regulatory environment, Hebert’s position underscores that federal frameworks cannot shield entities from state laws explicitly categorizing certain products as illegal gaming. He noted that if an event contract pertains to “gaming or other unlawful activity,” CFTC rules themselves impose limitations, effectively dismissing any defense reliant solely on federal oversight.
Louisiana has yet to issue a cease-and-desist to any prediction platform nor has the Attorney General’s office released a separate opinion regarding sports contracts. However, the LGCB has shown its readiness to expel what it perceives as illegal gambling activities from the state. Should sportsbooks or their affiliates direct Louisiana clients to sports contracts on external exchanges, they risk incurring fines or having conditions imposed on their licenses.
For prediction markets, Louisiana’s approach serves as a stark reminder that CFTC registration does not ensure state-level acceptance, particularly when contracts are intertwined with sports and athletes. As more states like Nevada, Maryland, Illinois, and now Louisiana integrate sports contracts into their gambling regulations, the question posed by former SEC chair Jay Clayton—”when does an event contract more closely resemble a financial option?”—remains pertinent.
Until federal and state regulators reach consensus on these issues, prediction platforms and sportsbooks will continue to navigate a fragmented regulatory landscape, with precedents like Louisiana’s offering early indications of increasing regulatory challenges.
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