Kalshi’s Federal Argument Rejected as Court Upholds State Gambling Laws

Federal Judge Rules Against Kalshi in Nevada Gambling Regulation Dispute

Kalshi Inc. has encountered a major legal obstacle after a federal judge in Nevada determined that the company’s prediction market platform falls under state gambling regulations. This decision effectively categorizes Kalshi’s sports-related contracts as unauthorized gambling activities. U.S. District Judge Andrew Gordon revoked a previous injunction that had shielded Kalshi from enforcement by Nevada gaming regulators, marking a crucial development in the ongoing dispute between the startup and state authorities.

This ruling directly challenges Kalshi’s main defense—that its operations are solely regulated by federal derivatives law under the oversight of the Commodity Futures Trading Commission (CFTC). Kalshi has consistently argued in various states that its event contracts, which function as binary options on outcomes such as sports scores or political results, are classified as swaps under the Commodity Exchange Act (CEA) and therefore should be governed at the federal level. However, Judge Gordon dismissed this interpretation, describing it as an overly broad reading of the law that would disrupt long-standing state control over gambling. He clarified that contracts based on sports events do not qualify as swaps and instead fit the definition of gambling under state law. This conclusion supports Nevada’s March 2025 cease-and-desist order, which accused Kalshi of breaching state statutes and warned of possible civil and criminal consequences.

The financial markets responded swiftly to the court’s decision. Shares of established sports betting companies, including DraftKings Inc. and Flutter Entertainment PLC (the parent company of FanDuel), surged as investors anticipated tighter regulation of prediction markets. DraftKings’ stock jumped by nearly 9.3%, while Flutter saw a 3.5% increase. Meanwhile, Kalshi promptly filed an emergency motion to pause the ruling while it appeals, warning of the risk of immediate criminal action by Nevada officials and highlighting the potential impact on its $650 million in active derivatives contracts. The company also cautioned that the ruling could lead to violations of CFTC regulations.

This case carries significant implications for how prediction markets are regulated nationwide. Kalshi’s reliance on the CEA has been central to its expansion into sports betting—a sector traditionally overseen by state authorities. The judge’s decision bolsters the position of state regulators seeking to enforce licensing requirements on platforms offering event-based wagers. Legal analysts suggest that this outcome could set a precedent for similar disputes in states such as New Jersey, Illinois, and Ohio, where regulators have also issued cease-and-desist notices.

Kalshi’s next steps involve pursuing appeals, with the company pledging to continue asserting that CFTC oversight should supersede state gambling laws. However, the ruling highlights the ongoing conflict between federal and state jurisdictions over the classification of event contracts. Although the CFTC designated Kalshi as a contract market in 2020, the agency has not taken a clear stance on the legality of sports-related contracts, leaving the issue unresolved.

The decision also prompts broader questions about the future of decentralized prediction markets, especially those utilizing blockchain technology. Regulators may now look to Nevada’s ruling as justification for treating such platforms as unlicensed gambling operations, regardless of user location, potentially leading to increased enforcement efforts.

Ultimately, Kalshi’s legal battle serves as a key test of whether prediction markets can operate alongside traditional, state-regulated gambling systems. For now, the Nevada ruling suggests that federal preemption arguments may not be universally accepted, compelling Kalshi and similar companies to navigate a complex and fragmented regulatory landscape.