Prediction Markets v. State Gaming Legal guidelines: The Kalshi Litigation Gamble | Epstein Becker & Inexperienced

Kalshi, a federally regulated prediction market, is betting huge on its enterprise mannequin. Whether that guess pays off is determined by how courts resolve a rising battle between federal commodities regulation and state playing legal guidelines.

Over the previous 12 months, Kalshi has change into the point of interest of a fast-moving authorized battle over the attain of federal preemption. What started as an revolutionary mannequin has now triggered a wave of litigation throughout federal courts, drawing in state regulators, tribal governments, and personal plaintiffs.

The end result has implications far past Kalshi itself. If Kalshi’s principle prevails, it can open the door for a major tradition shift in enforcement and compliance actions for related firms. If states prevail, this enterprise mannequin turns into much more complicated to function, and the ensuing precedent would lengthen effectively past prediction markets.

To perceive why courts are reaching such completely different conclusions, it helps to begin with what Kalshi truly does, and the way its platform is structured.

What Is Kalshi?

Kalshi operates a federally regulated prediction market that enables customers to commerce contracts based mostly on the result of real-world occasions. In easy phrases, customers purchase and promote “event contracts” tied as to whether one thing will occur—for instance, whether or not a specific sports activities workforce will win a recreation or whether or not a person will win an election.

Kalshi is registered with and overseen by the Commodity Futures Trading Commission (CFTC), which regulates derivatives and futures markets underneath the Commodity Exchange Act (CEA). Kalshi contends that this federal registration locations its occasion contracts inside the CFTC’s unique jurisdiction, insulating the platform from state playing and sports-betting legal guidelines.

That regulatory framing is what makes Kalshi completely different from conventional sportsbooks. Rather than taking wagers in opposition to customers, Kalshi positions itself as an trade the place members commerce contracts with each other, with costs reflecting the market’s collective evaluation of an end result’s chance. In observe, nonetheless, sports-related occasion contracts account for greater than 90% of the platform’s exercise.

State regulators, nonetheless, view the mannequin in another way. They argue that no matter labels, most of Kalshi’s occasion contracts operate like these of different sports activities betting platforms in substance and due to this fact require compliance with state gaming legal guidelines. That disagreement over classification, authority, and preemption sits on the heart of the rising wave of Kalshi litigation now unfolding throughout the nation.

The image is additional sophisticated by the truth that sports-related occasion contracts occupy a grey space, even underneath federal legislation. Historically, the CFTC has been reluctant to approve markets resembling sports activities betting, and till just lately, even political occasion contracts had been barred as opposite to the “public interest.” Kalshi efficiently challenged that place in late 2024, when a federal courtroom held that election-based contracts didn’t represent unlawful playing underneath the CEA, prompting the CFTC to reverse course.[1] Armed with that victory, Kalshi proceeded with sports activities contracts in early 2025—prompting swift resistance from state regulators. For states, the priority is simple: Kalshi’s enterprise mannequin would enable nationwide sports activities betting with out compliance with state playing legal guidelines. In distinction, for Kalshi and its buyers, a unified federal strategy is the aspiration—one “rulebook” as a substitute of fifty.

That unresolved stress has now spilled into courtrooms throughout the nation.

The Litigation Landscape

Anticipating state resistance, Kalshi adopted an aggressive, nationwide posture. Rather than ready to be sued or sanctioned in particular person jurisdictions, Kalshi went on offense, submitting federal actions searching for declaratory and injunctive aid to dam state enforcement. As of early 2026, Kalshi has pursued litigation in opposition to gaming authorities in a number of states, with extra disputes persevering with to emerge. The outcomes up to now are blended, underscoring that courts are drawing a high quality line between a “federally regulated contract” and what state regulators view as conventional sports activities wagering.

At the core of those circumstances is federal preemption—the precept that federal legislation can, in sure circumstances, supersede state legislation. Although courts usually describe three classes of preemption, solely two sorts meaningfully body the Kalshi disputes.

Express preemption applies the place Congress clearly states that federal legislation overrides state regulation. The Commodity Exchange Act (CEA) incorporates no such categorical preemption clause with respect to state playing legal guidelines, so this principle has performed solely a restricted function within the litigation. Instead, Kalshi’s main reliance is on area preemption. Kalshi argues that Congress granted the CFTC unique jurisdiction over transactions on designated contract markets (DCMs), leaving no room for states to manage sports-event contracts traded on a federally regulated trade.

States, in flip, have pointed to battle preemption because the extra acceptable lens. Under this doctrine, federal legislation displaces state legislation solely the place compliance with each is inconceivable or the place state regulation poses a transparent impediment to federal aims. Several courts have been skeptical that the will for nationwide uniformity alone satisfies that commonplace, significantly given states’ long-recognized police energy to manage playing and shield shoppers.  With that framework in thoughts, the courts’ early rulings reveal a fragmented and evolving authorized map.

Where the Cases Stand

Early Injunctions Favoring Kalshi

Nevada was the primary and most intently watched check case within the wave of Kalshi litigation. In April 2025, District Judge Andrew P. Gordon dominated that Kalshi had proven a chance of success on its federal preemption arguments and granted a preliminary injunction barring Nevada gaming authorities from imposing state laws in opposition to the platform.[2] However, that ruling took a shocking flip in December, when Judge Gordon dissolved the injunction, holding that sure sports-related contracts “closely resemble” conventional sportsbook bets and due to this fact fall inside Nevada’s gaming legal guidelines. Kalshi’s attraction to the Ninth Circuit is presently pending. [3]

Following Nevada’s preliminary ruling, a New Jersey federal courtroom additionally granted Kalshi a preliminary injunction, concluding that the CEA possible preempts state enforcement in opposition to Kalshi’s sports activities occasion contracts.[4] The New Jersey Division of Gaming Enforcement has appealed that call to the Third Circuit.[5]

In Tennessee, a federal courtroom issued a brief restraining order in January 2026 blocking enforcement of state gaming legal guidelines in opposition to Kalshi after regulators issued a cease-and-desist letter alleging unlawful sports activities wagering.[6]

Also, federal courts in Ohio, Connecticut, and New York have briefly paused state enforcement, leaving the legality of Kalshi’s sports activities contracts unresolved whereas preliminary injunction motions stay into account.[7]

Decisions Favoring State Authority

Maryland broke the early development favoring federal authority. In August 2025, a federal courtroom denied Kalshi’s request for injunctive aid, holding that Congress didn’t clearly intend to displace state authority over playing and that Kalshi may theoretically adjust to each federal and state regimes.[8] Kalshi has appealed that call to the Fourth Circuit.[9] 

Massachusetts marks the primary occasion through which a state regulator went on offense, initiating litigation in opposition to Kalshi in state courtroom somewhat than ready to reply to a federal motion. In January 2026, a Suffolk County Superior Court decide dominated that Kalshi’s sports activities occasion contracts are topic to Massachusetts gaming legal guidelines and issued a preliminary injunction barring Kalshi from permitting in-state customers to put sports-related bets and not using a license.[10] The courtroom rejected as “overly broad” Kalshi’s argument that CFTC oversight preempts state licensing and enforcement, concluding as a substitute that federal commodities regulation can coexist with the state’s conventional authority to manage playing.

Tribal and Class Action Litigation

Kalshi additionally faces challenges outdoors the state-regulator context. Tribal governments in each California and Wisconsin sued Kalshi in federal courtroom, alleging Kalshi’s sports activities occasion contracts violate the Indian Gaming Regulatory Act (IGRA), tribal-state compacts, and federal promoting legal guidelines.[11] The Northern District of California denied injunctive aid, holding that IGRA doesn’t apply to third-party platforms like Kalshi and that federal legislation expressly exempts CFTC-regulated transactions from “illegal internet gambling.” That ruling marked an early and vital victory for Kalshi, although the go well with in Wisconsin stays pending.

Finally, in November 2025, a putative nationwide class of Kalshi customers sued the corporate in federal courtroom, alleging that Kalshi violated state playing legal guidelines and misled prospects about how its platform operates.[12] The go well with marks the primary main shopper class motion in opposition to a prediction market and expands the litigation past regulatory authority into shopper safety and market-fairness claims.

Why This Matters / Key Takeaways

The Kalshi litigation illustrates the regulatory threat that accompanies innovation. For firms working in regulatory grey areas, Kalshi’s expertise highlights the significance of pondering past federal approval and anticipating how state regulators, and even non-public plaintiffs, might reply.

More broadly, the dispute exhibits how a lot regulatory authority can activate a product’s classification. As with cryptocurrencies, fantasy sports activities, and different data-driven merchandise, small variations in how a product is labeled (e.g., by-product versus wager, market versus playing) can decide which regulator applies and which guidelines govern. The end result of the Kalshi circumstances will inform not solely sports-related occasion contracts, however future efforts to construct markets round different unsure occasions.

From a litigation and compliance perspective, the takeaway is simple: companies on the intersection of regulated markets and gaming should plan for uncertainty. A conservative technique assumes state legal guidelines apply and limits publicity accordingly; a extra aggressive strategy seeks readability by way of litigation, with the potential upside and price that entails. Until courts or Congress present clearer steering, firms in or adjoining to prediction markets ought to proceed cautiously, construct versatile compliance methods, and intently monitor how this quickly evolving authorized panorama develops.

Endnotes

[1] KalshiEx LLC v. Commodity Futures Trading Commission, No. 1:23-cv-03257, 2024 WL 4164694 (D.D.C. Sept. 12, 2024), dismissed, No. 24-5205, 2025 WL 1349979 (D.C. Cir. May 7, 2025).

[2] KalshiEx, LLC v. Hendrick, No. 2:25-cv-00575 (D. Nev. April 9, 2025).

[3] KalshiEx, LLC v. Hendrick, No. 25-7516 (ninth Cir. Nov. 28, 2025).

[4] KalshiEx, LLC v. Flaherty, No. 1:25-cv-02152 (D.N.J. Apr. 28, 2025).

[5] KalshiEx, LLC v. Flaherty, No. 25-1922 (third Cir. May 15, 2025).

[6] KalshiEx, LLC v. Orgel, No. 3:26-cv-00034 (M.D. Tenn. Jan. 9, 2026).

[7] KalshiEx, LLC v. Schuler, No. 2:25-cv-01165 (S.D. Ohio Oct. 7, 2025); KalshiEx LLC v. Cafferelli, No. 3:25-cv-02016 (D. Conn. Dec. 3, 2025); KalshiEx LLC v. Williams, No. 1:25-cv-08846 (S.D.N.Y Oct. 27, 2025).

[8] KalshiEx, LLC v. Martin, No. 1:25-cv-01283 (D. Md. Aug. 1, 2025).

[9] KalshiEx, LLC v. Martin, No. 25-1892 (4th Cir. Aug. 6, 2025).

[10] Commonwealth of Massachusetts v. KalshiEx, LLC, No. 2584CV02525 (Mass. Super. Ct. Sept. 12, 2025).

[11] Blue Lake Rancheria v. Kalshi Inc., No. 3:25-cv-06162 (N.D. Cal. July 22, 2025); Ho-Chunk Nation v. Kalshi Inc., No. 3:25-cv-00698 (W.D. Wis. Aug. 20, 2025).

[12] Pelayo et al v. Kalshi Inc., No. 1:25-cv-09913 (S.D.N.Y. Nov. 26, 2025).

[View source.]