Crypto.com and Novig Sue Missouri Over Sports Event Contracts
Two prediction market operators filed federal lawsuits in Missouri on 18 October 2026, asking judges to permanently block the state from treating their event contracts as illegal sports wagering. The filings mark the first courtroom test of Missouri Attorney General Catherine Hanaway's September enforcement campaign, and they arrive at a moment when circuit courts across the country are reaching contradictory conclusions on the same legal question. For accounting firms, auditors, and CFOs whose clients touch prediction markets or digital asset derivatives, the litigation introduces a live classification risk that affects how revenue, tax obligations, and licensing costs are recorded right now.
What Missouri's Attorney General Did
On 16 and 17 September 2026, Hanaway sent cease-and-desist letters to six operators: Crypto.com, Novig, Kalshi, Polymarket, Robinhood, and Underdog. Each letter gave the recipient 30 days to either stop offering sports event contracts to Missouri residents or obtain a licence from the Missouri Gaming Commission and begin remitting the state's 10 per cent wagering tax.
The six companies named and their current status
Missouri voters approved legal sports wagering in November 2024. The Gaming Commission has since issued the two direct mobile wagering licences permitted under the state constitution, and both have been awarded. That detail sits at the heart of one of Crypto.com's arguments: even if the company wanted to comply by licensing, no licence is available to obtain.
Of the six operators named, only Crypto.com and Novig had filed suit in either of Missouri's federal districts as of the weekend following the filing. Kalshi, Polymarket, Robinhood, and Underdog had not initiated proceedings, according to a review of court records by The Block. Separately, Underdog had already filed against a comparable crackdown in another state but chose not to replicate that action in Missouri. Kalshi had engaged in what the attorney general's office described as "ongoing discussions" as early as 2 October.
The Two Lawsuits in Detail
Crypto.com's filing in the Western District
The entity that sued is North American Derivatives Exchange, the CFTC-registered exchange that operates Crypto.com's prediction market product. It filed in the Western District of Missouri. The complaint makes two core arguments. First, the Commodity Exchange Act grants the CFTC exclusive jurisdiction over contracts listed on a designated contract market, preempting any state law that would characterise those same contracts as gambling. Second, the attorney general's letter was addressed to Foris DAX, Inc., a different Crypto.com entity entirely, which the complaint says is a factual and legal error that undermines the enforcement notice.
The exchange is seeking a declaratory judgment confirming federal preemption and a permanent injunction barring Missouri from enforcing its sports wagering statutes against its contracts.
Novig's filing in the Eastern District
Novig, whose exchange operator is Ludlow Exchange LLC, filed in Missouri's Eastern District. Novig has previously challenged similar enforcement actions in other states. Its Missouri complaint asks for both a preliminary and a permanent injunction. Novig's argument for a preliminary injunction leans on pending appellate activity: the Eighth Circuit, which covers Missouri, is already hearing an appeal on the federal preemption question in a Kalshi case arising from Iowa. Novig argues the court should preserve the status quo while that appeal works its way through the circuit.
Novig's profile is notable among the six. The company is associated with a partnership with the New York Mets baseball franchise and a marketing campaign featuring actress Sydney Sweeney. That commercial footprint underscores how mainstream prediction market operators have become, and how much is at stake commercially when a state challenges their legal basis.
The Federal Preemption Argument and the Circuit Split
The preemption question is not new, but the legal landscape is unsettled. Federal appeals courts have divided on whether the Commodity Exchange Act displaces state gambling laws for event contracts offered on CFTC-registered exchanges.
Where the circuits stand
The Sixth, Ninth, and Third Circuits have sided with the position that federal law preempts state gambling statutes in this context. That alignment covers a substantial share of US territory but does not bind the Eighth Circuit, which is the one that will ultimately govern Missouri. The Eighth Circuit has the Kalshi-Iowa appeal before it, which makes the choice of Missouri as a venue particularly significant: whatever that court decides will set the controlling precedent for the states it covers, including Missouri itself.
Missouri's constitution further complicates the picture. Because it caps direct mobile sports wagering licences at two, and both are taken, there is no administrative compliance path available even for an operator willing to pay the 10 per cent tax and submit to state oversight. The lawsuits therefore argue that enforcement amounts to a de facto ban, not a licensing regime.
Accounting and Tax Classification: What Is Actually at Stake
For firms using digital asset accounting software to book client activity on prediction market platforms, the Missouri litigation is not background noise. It directly affects how specific revenue streams should be classified, reported, and taxed at both the entity and individual level.
The core classification problem
If a court ultimately holds that state gambling law applies, event-contract revenue becomes wagering income for Missouri residents. That triggers a different tax treatment than commodity trading gains, different withholding obligations for the platform, and potentially different accounting classifications on the books of any entity that holds these contracts as financial instruments. Missouri's 10 per cent wagering tax would also represent an incremental cost that does not currently appear in client projections.
If federal preemption holds, the contracts remain regulated commodity derivatives. Revenue is treated as trading income under the applicable federal framework, and state wagering tax does not apply. The platform's obligations to users are governed by CFTC rules rather than state gaming commission oversight.
Neither outcome has been judicially confirmed in the Eighth Circuit. Until it is, any firm with clients that trade on these platforms, operate them, or invest in companies that do is sitting with a genuine accounting uncertainty. That uncertainty is material enough to warrant disclosure in audit working papers and client advisory memos.
Age verification and KYC implications
Hanaway's letter to Crypto.com cited a specific regulatory concern beyond jurisdiction: the platform was said to allow users as young as 18 to trade, while Missouri's minimum age for sports betting is 21. If gambling law applies, that is a compliance failure with potential civil penalties. If CFTC rules apply, the relevant age and KYC standards are federal ones, which differ. For compliance teams building or reviewing onboarding controls for prediction market clients, this age-gating discrepancy is a concrete operational risk point that needs to be identified and documented regardless of how the preemption question resolves.
What Four Operators Waiting in the Wings Tells Us
The decision by Kalshi, Polymarket, Robinhood, and Underdog not to file suit in Missouri is notable. Several explanations are plausible, and accounting and compliance teams should understand why each matters.
Strategic patience versus litigation fatigue
Kalshi entered dialogue with the attorney general's office early and may be pursuing a negotiated outcome. Polymarket, which is primarily accessible to non-US users, may have a smaller Missouri-resident user base and therefore less commercial urgency to litigate. Robinhood's prediction market feature is newer and still scaling, so the firm may be weighing whether a federal lawsuit accelerates regulatory clarity or hardens opposition. Underdog has already litigated in another state and may be conserving resources while watching the Eighth Circuit appeal develop.
What unites all four is that they are, by holding off, accepting a period of legal uncertainty. If Missouri enforces against them while they wait, the question of back taxes owed, penalties, and revenue clawbacks becomes live. Auditors with these firms or their investors as clients should factor that contingent liability into their analysis and consider whether it requires recognition or disclosure under applicable accounting standards.
For a broader view of how US regulatory fragmentation is reshaping compliance obligations, see our analysis of how shifting US crypto regulation affects compliance teams. The durability of federal agency rule-making in this space is examined separately in our piece on SEC and CFTC pro-crypto rule durability.
Practical Steps for Accounting Firms and CFOs
The litigation is in its early stages and will not resolve quickly. The Eighth Circuit appeal in the Iowa-Kalshi case is the most likely source of controlling guidance, but appellate timelines are unpredictable. In the meantime, firms advising clients with prediction market exposure should take several concrete steps.
Immediate actions to take now
First, identify which clients have material revenue or positions linked to sports event contracts on any of the six named platforms. Even if your client is not a Missouri resident, the regulatory classification question has national relevance given the circuit split.
Second, document the uncertainty explicitly. Accounting standards require that contingent liabilities be assessed for probability and materiality. A live federal circuit split on the legal classification of a revenue stream is precisely the kind of fact that needs to appear in working papers, not be quietly resolved by assuming the most favourable outcome.
Third, review onboarding and KYC records for any prediction market platform clients. If state gambling law ultimately applies, age verification records will be among the first things a regulator requests. Gaps in those records carry regulatory and reputational risk that is separate from the tax question.
Fourth, watch the Eighth Circuit docket. The Kalshi-Iowa appeal is the near-term bellwether. A ruling that sides with Missouri would immediately expose the four non-litigating operators to enforcement risk and would affect how the Crypto.com and Novig cases proceed. A ruling for the operators would likely resolve the classification uncertainty in favour of federal commodity treatment across the circuit.
Using robust crypto bookkeeping software that can flag unsettled regulatory classifications and attach notes to specific transaction categories is one way to ensure the uncertainty is captured in the ledger rather than buried in a footnote.
Frequently Asked Questions
What is a sports event contract and why does Missouri object to it?
A sports event contract is a financial instrument whose payout depends on the outcome of a sporting event, listed on a CFTC-registered exchange. Missouri's attorney general argues these are functionally equivalent to sports bets and therefore subject to state wagering laws, including licensing requirements and a 10 per cent tax.
Why can't the operators just get a Missouri gaming licence?
Missouri's constitution limits direct mobile sports wagering licences to two, and both have already been issued. There are no additional licences available, which means compliance through licensing is not a viable option even for an operator willing to accept state oversight.
How does the CFTC preemption argument work?
The Commodity Exchange Act gives the CFTC exclusive jurisdiction over contracts traded on designated contract markets. Operators argue this federal grant of authority displaces, or preempts, any state law that would classify the same contracts as gambling. Several federal circuit courts have agreed; the Eighth Circuit has not yet ruled.
What accounting treatment applies while the legal question is unresolved?
The classification is genuinely uncertain. Firms should document the uncertainty in working papers, assess whether any contingent liability requires recognition or disclosure under applicable standards (such as ASC 450 or IAS 37), and avoid booking the most favourable outcome as fact until a court confirms it.
Does this affect clients outside Missouri?
Yes, indirectly. The underlying preemption question is being litigated in multiple circuits. A ruling in the Eighth Circuit will influence how regulators and courts in other states approach similar enforcement actions, making this a nationally relevant compliance issue for any firm with prediction market exposure.
Source: The Block