Prediction platform goes E.U. with American arguments. How likely is it to prevail?

On October 4, 2026, Polymarket took its case to court in the Netherlands using about the same arguments as in America. It’s seeking judicial review of an administrative ruling of the Dutch gaming regulator affirming its cease-and-desist order imposing a ban and penalty of approximately EUR 420,000. Whereas its arguments in America carry about half the day, the Netherlands—or Europe, for that matter—offers less hope.

Prediction-market litigation in America has been proliferous for some time already. The outcomes vary from support from the federal regulator to opposition from the states’ gaming regulators to support and opposition from the courts where they win about half the time. In class actions consumers argue that prediction markets are nothing but illegal gambling platforms without the requisite licenses and consumer protection. In criminal law insider trading on prediction markets has been prosecuted as a crime under the Commodity Exchange Act (“CEA”).

By 2026, the gaming regulators of many states have banned prediction markets for offering bets without the requisite licenses. The federal derivatives market regulator, the U.S. Commodity Futures Trading Commission (“CFTC”), has brought suit against multiple states seeking to enforce its alleged exclusive jurisdiction, arguing the U.S. Constitution has vested the CFTC and no other regulator with jurisdiction over prediction-market event contracts because they constitute swaps.

In 2026, judicial review of these administrative actions has reached the point where appellate courts are split on the issue. One has held that the event contracts traded on prediction markets are derivatives so that the CFTC has exclusive jurisdiction. Other appellate courts have held, simply put, that the event contracts are not derivatives but bets, or that they are both derivatives and bets and that the CFTC doesn’t have exclusive jurisdiction.

The most recent ruling on appeal denying exclusive jurisdiction is of September 25, 2026. The court starts by explaining that after Kalshi launched sports-event contracts in early 2025, gaming regulators in two states warned they would bring enforcement action as its sports-event contracts violated their gaming laws. To prevent this, Kalshi sought an injunction in the two states, arguing the gaming regulators lacked jurisdiction because federal law vests the federal regulator with exclusive jurisdiction over swaps on the official derivative exchanges. This argument is based on its core argument that Kalshi’s event contracts aren’t bets but derivatives, more specifically, swaps.

One of the lower courts found against Kalshi, holding that it had failed to show that sports-event contracts are swaps within the federal regulator’s exclusive jurisdiction. Even if it had so shown, Kalshi still had failed to show that federal law preempted state gaming laws. The other court found for Kalshi, holding that Kalshi would likely prevail on the merits, as sports-event contracts are swaps subject to the CFTC’s exclusive jurisdiction.

Both cases reached the appellate court which held that Kalshi failed to show on appeal that sports-event contracts fall within the statutory definition of a swap and thus within the purview of the CFTC’s exclusive jurisdiction. The appellate court also held that, even assuming those contracts are swaps, the applicable federal law, the Commodity Exchange Act, doesn’t preempt either state’s gaming laws, neither expressly nor impliedly.

Click here to read why the appellate court says sports-event contracts are not swaps.

In this appellate case and other prediction-market litigation the semantic meaning of words, context of the statutory provision, and the purpose of the law are key. Notably, the American statute has definitions of various financial instruments whereas the Dutch law does not. This is important to remember because those definitions have been crucial to the prediction markets’ and CFTC’s arguments and victories in court. The defeats, on the other hand, seem to be due to a more comprehensive interpretation of the law and its objectives.

A petition for writ of certiorari was filed with the U.S. Supreme Court on September 2, 2026 in the case where an appellate court held that event contracts are swaps. It probably won’t be long before the High Court resolves the circuit split. A practical policy problem may arise if it were to hold that sports-event contracts aren’t swaps, because the CFTC has been busy making rules and filing briefs assuming and explaining that event contracts are swaps. In its enforcement of criminal laws, the Department of Justice, too, assumes that event contracts are swaps. Reversing course across the board is not an option, if it’s a binary option, that is, if it’s “yes or no” in each area of law. Accordingly, it wouldn’t come as a surprise if the Supreme Court were to hold in the interest of uniformity and policy in all areas of law that event contracts are swaps.

That might sound strange when reading the gaming regulators stance and the appellate court’s semantic and textual analysis. Admittedly, it might be a stretch to say mention-market contracts which center on the mere mention of a contextually irrelevant word are derivatives for purposes of the CEA.

Further, what remains to be seen is the Supreme Court’s stance on the position that event contracts are both derivatives and bets which could allow for concurrent federal and state jurisdiction.

The position that event contracts are both derivatives and bets is the one adopted by the financial regulator for the European Union (“E.U.”). Not all event contracts are derivatives, it adds, only those whose event question relates to the underlying financial instruments listed in Section C (4) through (10) of Annex I to Directive 2014/65/EU on markets in financial instruments. Event contracts that are derivatives would be classified as binary options which are subject to an E.U. prohibition on marketing, distribution, and sale to retail investors.

Notably, no definition is used in any of its statements. The Netherlands doesn’t even have any definition of a swap or derivative; the E.U. only has one of a specific swap. Hence, prediction markets won’t be able to rely on any statutory definition or regulator’s explanation in the E.U. or Netherlands as they’ve done successfully in America. Dutch lawsuits describe a swap as “some sort of barter or exchange contract” but that is too vague. References in the E.U. or the Netherlands are limited to the genus ‘financial instrument’. Therefore, classification of event contracts in the Netherlands, would have to follow the E.U. regulator’s statement. For prediction markets that means event contracts involving the underlying financial instruments under Directive 2014/65/EU could be financial instruments and binary options, which are subject to a prohibition, and also classify as bets, which are also subject to a prohibition. Mention-market contracts arguably, wouldn’t qualify as financial instruments or binary options as they don’t refer to said instruments.

Inasmuch as event contracts are binary options in the Netherlands, the country has a relevant case of 2015 about binary options and the division of powers between the financial and gaming regulators. Although Dutch courts aren’t bound by precedent, the case offers insight into the position of the regulators as it pertains to binary options and gaming and thus prediction markets.

The financial regulator had denied a company a license under Article 5(1) of Directive 2014/65/EU to sell binary options, because arguing granting it would be in violation of gaming laws. The regulator argued that offering binary options qualifies as offering bets which requires a gaming license, which the company didn’t have. So as a prerequisite to granting its license, the regulator was requiring a gaming license. The court held that by requiring the gaming license to grant its license the regulator had exceeded its jurisdiction (¶ 3.5). The gaming regulator had not taken any enforcement action against the company that the financial regulator could hold against it to deny the license for lack of integrity. According to the court, the financial regulator lacks jurisdiction to declare violations and to take enforcement action beyond the purview of the financial laws. 

At the time, the Dutch gaming regulator wasn’t interested in regulating binary options or financial instruments. The Director of Enforcement had stated in a letter quoted by the court that binary options are both financial instruments and bets at the same time but concluded that the gaming regulator didn’t consider itself as the appropriate regulator for such financial product.

The ruling further states that Netherlands financial laws already provide for protection of buyers of financial instruments that also qualify as bets and that the level of protection (the prohibition relating to retail investors) is deemed adequate. The appellate court later upheld the trial court’s ruling.

Although this case clearly marks the limits of both regulators’ jurisdiction, those limits don’t allow for simulating the benefits of exclusive jurisdiction of a single, prediction-market friendly regulator as in America.

To secure the same effect of exclusive jurisdiction, Polymarket perhaps should’ve first applied for a license with the financial regulator, so that this regulator would’ve been vested with jurisdiction over prediction markets to the exclusion of the gaming regulator. Apparently, Polymarket didn’t do so. The problem was probably launching without first registering with any agency. This gave the gaming regulator the advantage to move first, immediately preempting, or at least delaying, any benefits of exclusive jurisdiction.

Polymarket probably would not benefit much, if at all, from exclusive jurisdiction in the Netherlands anyhow, given the prohibition on binary options relating to retail investors—currently its largest target group and clientele. Additionally, denying that event contracts are binary options, is no longer an option for as Polymarket has already recognized they are in U.S. litigation. The gaming regulator’s ban and penalty on Polymarket make things even more complicated, because, contrary to what happened to the company in the case mentioned above, the financial regulator could use that enforcement action as a justification for denying a license. There seems to be no other option but to lobby for more favorable laws.

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