Opinion: Nevada’s Regulator Warned Prediction Markets Could Become Slot Machines, and History Suggests He’s Not Wrong
Nevada Gaming Control Board chairman Mike Dreitzer laid out a three-act scenario at an industry conference last week.
Act one: prediction market platforms offer contracts on sports events as federally regulated financial instruments. Act two: the same legal theory that enables sports contracts gets extended to online casino-style products available nationwide. Act three: those products migrate into physical electronic gaming terminals in bars, convenience stores, and what Dreitzer called “prediction lounges” operating outside traditional casino frameworks, potentially on every street corner.
“Think about a ‘prediction lounge’ right next to a church,” Dreitzer said.
The reaction in some corners of the industry was skeptical and didn’t quite take Dreitzer and his take seriously. The three-act scenario sounds like regulatory catastrophizing, a regulator defending his own turf by projecting worst-case outcomes that may never materialize. The CFTC’s proposed rulemaking, which we have covered extensively, explicitly limits prediction market contracts to categories with legitimate price discovery value. Slot machine-style random-outcome products do not obviously fit that framework.
Before dismissing Dreitzer’s warning, though, it is worth asking: has the gaming industry ever seen this playbook before? That’s where things get a bit interesting.
The Playbook in Gambling Product Progression Exists
Historical horse racing terminals, better known as HHR, look exactly like slot machines. They sit in rows on casino floors and in dedicated gaming facilities. Players press a button, lights flash, symbols align or do not align, and money exchanges hands in seconds. The experience is functionally indistinguishable from a slot machine.
But HHR terminals are not classified as slot machines. They are classified as pari-mutuel wagering on pre-recorded horse races, which places them under horse racing regulation rather than casino gaming law. That classification allowed them to proliferate in states that do not permit traditional casino slots, including Virginia, Kentucky, and Wyoming, by threading a regulatory gap that was not designed to accommodate them. By the time regulators and legislators caught up, HHR had generated enough revenue and enough political support from horse racing interests to become effectively entrenched.
Video gambling terminals in Illinois operate on a similar logic. The state’s gaming statute was designed around riverboat casinos and racetracks. VGTs exploited a provision in the Video Gaming Act to place slot-adjacent machines in bars, restaurants, and truck stops across the state. By 2025, there were more than 49,000 VGT terminals operating in Illinois, the equivalent of more than 40 full-size casinos by machine count, in venues that were never contemplated as gaming establishments. As we have covered in our ongoing Illinois VGT reporting, the industry has since tried to expand into Chicago, the one major market that has resisted, generating a political fight that continues today.
Skill games in Pennsylvania, Missouri, and Georgia used a no-chance theory to operate slot-adjacent machines in convenience stores and gas stations. Pennsylvania’s Supreme Court ultimately ruled them illegal last month after years of regulatory paralysis. Missouri’s attorney general is currently fighting businesses that argue their pre-reveal gaming devices are different from the machines the courts have targeted. The playbook is identical in each case: find a legal theory that keeps the product outside the applicable gambling statute, scale rapidly, and accumulate enough political and economic weight to complicate any subsequent crackdown.
Sweepstakes casinos used a promotional currency theory to operate casino-style games nationwide without any state gaming license, reaching an estimated one million daily users in the United States before states began restricting them. The Kentucky attorney general sued VGW, the operator of Chumba Casino, along with Kalshi and Polymarket in a single filing last month. The products are legally distinct. The regulatory theory animating the enforcement is the same: companies using novel legal structures to offer gambling-adjacent products without state licensing.
Sportsbooks Are Already Exploring the Leap to Slot Style Machines
Dreitzer’s Act One, prediction markets offering sports contracts under federal preemption, is already happening and is already in federal appellate courts. His Act Two, the extension of that theory to online casino-style products, is the step that requires the most analytical work to evaluate.
The CFTC’s proposed rulemaking suggests the agency sees limits on how far prediction market contracts can extend. The NPRM’s framework appears to exclude products without legitimate price-discovery value, including pure-luck slot outcomes. But the NPRM is not final, the CFTC’s current leadership has shown more appetite for expanding prediction market products than any prior administration, and the agency’s track record on sports contracts, where it approved products that multiple federal courts have since found may not qualify as swaps at all, does not inspire confidence that the regulatory guardrails will hold against determined commercial pressure.
The more durable version of Dreitzer’s concern is not that prediction market platforms will offer literal slot machines tomorrow. It is the legal theory that enables sports contracts, once validated by appellate courts, to become a template. If a CFTC-licensed exchange can offer contracts on sports outcomes over state objection, what stops it from offering contracts on other binary outcomes with faster resolution times and more frequent plays? The structural difference between a sports contract settling at game’s end and a contract settling on a coin flip or a random number is a matter of degree, not kind. The legal theory that protects one does not automatically collapse when applied to the other.
Sportsbook companies have managed to take a leap similar to the HHR machines. DK Replay is a product that launched in Oregon and lets customers bet on MLB plate appearances from a library of hundreds of thousands of real historical at-bats. The outcomes are real, but the system provides no identifying information that lets the bettor look up the result. The experience operates very similarly to a slot machine or a video poker game. The Oregon Lottery, which regulates sports betting in the state and is DraftKings’ exclusive partner there, immediately launched an investigation into the slot machine-style games.
There Are Reasons Prediction Markets May Avoid This Route Entirely
Dreitzer’s Act Three: physical terminals proliferating on street corners face obstacles that the online product does not. State and local governments have more regulatory leverage over physical establishments than over online access. Brick-and-mortar gaming terminals require landlord agreements, local permits, and visible enforcement that online-only products avoid. The HHR and VGT industries succeeded in placing physical terminals at scale because they had horse racing and gaming statutes to work with. Building a physical terminal network under a CFTC financial derivatives license is a longer, more legally contested path, and one where the comparative revenue to online products may not make any sense.
It is also worth noting what Dreitzer said alongside his warning: Nevada is reviewing at least one prediction-style product that appears to comply with Nevada gaming regulations. His argument is not that prediction products should not exist. It is that they should exist within the licensing and consumer protection frameworks that every other gaming product has accepted.
In my opinion, that is a reasonable position. It is also the position that every regulator has taken toward every gambling-adjacent product that eventually circumvented their framework. HHR operators were told to get horse racing licenses. Skill game operators were told to comply with gambling device regulations. Sweepstakes casinos were told to get gaming licenses. The response in each case was to argue that the existing framework did not apply, and to litigate that argument long enough to establish commercial facts on the ground.
Dreitzer knows this history. So does every gaming regulator watching the prediction markets fight. Whether the courts give them the tools to prevent Act Two depends largely on what the Sixth Circuit says on July 30, and ultimately on what the Supreme Court says thereafter. The prediction lounge next to the church may be a rhetorical flourish. The regulatory concern underneath it is built on real-life indicators.
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