Google restricts prediction market ads in five states amid legal battles

Google has blocked prediction market operators from advertising to residents in five U.S. states as legal challenges over the regulation of event contracts proceed. The updated policy prevents operators like Kalshi from running ads targeting Connecticut, Michigan, Nevada, New York and Ohio. Each of those states has sued prediction market operators to block them from operating within their jurisdictions. The policy change was first reported by industry newsletters last week after Google added a section for prediction markets to its main advertising policies document.

Google stated that due to the complexities and speculative nature of trading prediction market contracts, ads are only allowed in specific locations that meet its criteria. The company defines these platforms as those facilitating exchange-listed event contracts related to economics, sports or current events. Sports-event contracts are not available in Nevada and Michigan. This advertising restriction coincides with ongoing litigation, including a new lawsuit filed by prediction market operator Underdog against the state of Tennessee.

Underdog filed its lawsuit in federal court after receiving a cease-and-desist order from Tennessee authorities. The company is asking the court to block the state from prohibiting its event contracts, claiming they are regulated by the Commodity Futures Trading Commission and exempt from state gambling laws. "Any enforcement action by Tennessee would be meritless," the lawsuit says. Underdog has now sued seven states that have tried to ban its sports-event contracts, including Washington, Connecticut, Massachusetts, New Mexico, Ohio and Wisconsin.

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Sports-event contracts continue to dominate the prediction market industry, according to a recent S&P Global Market Intelligence survey. It found that while only 10 percent of respondents traded on a yes or no exchange over the past year, 70 percent of users traded sports event contracts. The survey also found 42 percent of respondents were aware of prediction market operators but had not used them, while 44 percent had never heard of them. Among users, 70 percent had traded on sports-related outcomes, compared to 36 percent on economic outcomes and 33 percent on political outcomes.

Nevada Gaming Control Board Chairman Mike Dreitzer has challenged the CFTC's argument that prediction markets should be treated differently from sportsbooks. Speaking during an Indian Gaming Association webinar, he said contracts tied to sports results function like conventional bets. Dreitzer compared a 10 dollar bet on an NFL game with a 10 dollar contract on the same outcome, arguing the transactions are effectively identical. He also noted that the ability to exit a position before a match ends is not unique, as online sportsbooks offer cash-out features.

Dreitzer questioned other arguments used to distinguish prediction markets, such as participants trading directly against one another. He noted poker, horse racing and bingo also involve competition between participants but are still governed by gambling laws. He also raised concerns about whether retail customers are always trading against other individuals, suggesting hedge funds and affiliated firms may take positions against them. Consumer safeguards are another concern, as some prediction market platforms accept users aged 18.

The CFTC issued an interim final rule on October 9 excluding qualifying traditional gambling products from the federal definition of a swap. The measure aims to reinforce the distinction between state-regulated gambling and derivatives traded on financial markets. The commission has also submitted two proposed rules to the White House to clarify federal oversight of prediction markets. Bet MGM CEO Adam Greenblatt told analysts he believes the U.S. Supreme Court will ultimately rule against prediction markets, arguing their sports event contracts go beyond what Congress intended.