Kalshi, a federally regulated prediction market, is betting big on its business model. Whether that bet pays off depends on how courts resolve a growing conflict between federal commodities regulation and state gambling laws.
Over the past year, Kalshi has become the focal point of a fast-moving legal battle over the reach of federal preemption. What began as an innovative model has now triggered a wave of litigation across federal courts, drawing in state regulators, tribal governments, and private plaintiffs.
The outcome has implications far beyond Kalshi itself. If Kalshi’s theory prevails, it will open the door for a significant culture shift in enforcement and compliance activities for similar companies. If states prevail, this business model becomes far more complex to operate, and the resulting precedent would extend well beyond prediction markets.
To understand why courts are reaching such different conclusions, it helps to start with what Kalshi actually does, and how its platform is structured.
What Is Kalshi?
Kalshi operates a federally regulated prediction market that allows users to trade contracts based on the outcome of real-world events. In simple terms, users buy and sell “event contracts” tied to whether something will happen—for example, whether a particular sports team will win a game or whether an individual will win an election.
Kalshi is registered with and overseen by the Commodity Futures Trading Commission (CFTC), which regulates derivatives and futures markets under the Commodity Exchange Act (CEA). Kalshi contends that this federal registration places its event contracts within the CFTC’s exclusive jurisdiction, insulating the platform from state gambling and sports-betting laws.
That regulatory framing is what makes Kalshi different from traditional sportsbooks. Rather than taking wagers against users, Kalshi positions itself as an exchange where participants trade contracts with one another, with prices reflecting the market’s collective assessment of an outcome’s likelihood. In practice, however, sports-related event contracts account for more than 90% of the platform’s activity.
State regulators, however, view the model differently. They argue that regardless of labels, most of Kalshi’s event contracts function like those of other sports betting platforms in substance and therefore require compliance with state gaming laws. That disagreement over classification, authority, and preemption sits at the center of the growing wave of Kalshi litigation now unfolding across the country.
The picture is further complicated by the fact that sports-related event contracts occupy a gray area, even under federal law. Historically, the CFTC has been reluctant to approve markets resembling sports betting, and until recently, even political event contracts were barred as contrary to the “public interest.” Kalshi successfully challenged that position in late 2024, when a federal court held that election-based contracts did not constitute illegal gambling under the CEA, prompting the CFTC to reverse course.[1] Armed with that victory, Kalshi proceeded with sports contracts in early 2025—prompting swift resistance from state regulators. For states, the concern is straightforward: Kalshi’s business model would allow nationwide sports betting without compliance with state gambling laws. In contrast, for Kalshi and its investors, a unified federal approach is the aspiration—one “rulebook” instead of 50.
That unresolved tension has now spilled into courtrooms across the country.
The Litigation Landscape
Anticipating state resistance, Kalshi adopted an aggressive, nationwide posture. Rather than waiting to be sued or sanctioned in individual jurisdictions, Kalshi went on offense, filing federal actions seeking declaratory and injunctive relief to block state enforcement. As of early 2026, Kalshi has pursued litigation against gaming authorities in multiple states, with additional disputes continuing to emerge. The results so far are mixed, underscoring that courts are drawing a fine line between a “federally regulated contract” and what state regulators view as traditional sports wagering.
At the core of these cases is federal preemption—the principle that federal law can, in certain circumstances, supersede state law. Although courts often describe three categories of preemption, only two types meaningfully frame the Kalshi disputes.
Express preemption applies where Congress clearly states that federal law overrides state regulation. The Commodity Exchange Act (CEA) contains no such express preemption clause with respect to state gambling laws, so this theory has played only a limited role in the litigation. Instead, Kalshi’s primary reliance is on field preemption. Kalshi argues that Congress granted the CFTC exclusive jurisdiction over transactions on designated contract markets (DCMs), leaving no room for states to regulate sports-event contracts traded on a federally regulated exchange.
States, in turn, have pointed to conflict preemption as the more appropriate lens. Under this doctrine, federal law displaces state law only where compliance with both is impossible or where state regulation poses a clear obstacle to federal objectives. Several courts have been skeptical that the desire for nationwide uniformity alone satisfies that standard, particularly given states’ long-recognized police power to regulate gambling and protect consumers. With that framework in mind, the courts’ early rulings reveal a fragmented and evolving legal map.
Where the Cases Stand
Early Injunctions Favoring Kalshi
Nevada was the first and most closely watched test case in the wave of Kalshi litigation. In April 2025, District Judge Andrew P. Gordon ruled that Kalshi had shown a likelihood of success on its federal preemption arguments and granted a preliminary injunction barring Nevada gaming authorities from enforcing state regulations against the platform.[2] However, that ruling took a surprising turn in December, when Judge Gordon dissolved the injunction, holding that certain sports-related contracts “closely resemble” traditional sportsbook bets and therefore fall within Nevada’s gaming laws. Kalshi’s appeal to the Ninth Circuit is currently pending. [3]
Following Nevada’s initial ruling, a New Jersey federal court also granted Kalshi a preliminary injunction, concluding that the CEA likely preempts state enforcement against Kalshi’s sports event contracts.[4] The New Jersey Division of Gaming Enforcement has appealed that decision to the Third Circuit.[5]
In Tennessee, a federal court issued a temporary restraining order in January 2026 blocking enforcement of state gaming laws against Kalshi after regulators issued a cease-and-desist letter alleging illegal sports wagering.[6]
Also, federal courts in Ohio, Connecticut, and New York have temporarily paused state enforcement, leaving the legality of Kalshi’s sports contracts unresolved while preliminary injunction motions remain under consideration.[7]
Decisions Favoring State Authority
Maryland broke the early trend favoring federal authority. In August 2025, a federal court denied Kalshi’s request for injunctive relief, holding that Congress did not clearly intend to displace state authority over gambling and that Kalshi could theoretically comply with both federal and state regimes.[8] Kalshi has appealed that decision to the Fourth Circuit.[9]
Massachusetts marks the first instance in which a state regulator went on offense, initiating litigation against Kalshi in state court rather than waiting to respond to a federal action. In January 2026, a Suffolk County Superior Court judge ruled that Kalshi’s sports event contracts are subject to Massachusetts gaming laws and issued a preliminary injunction barring Kalshi from allowing in-state users to place sports-related bets without a license.[10] The court rejected as “overly broad” Kalshi’s argument that CFTC oversight preempts state licensing and enforcement, concluding instead that federal commodities regulation can coexist with the state’s traditional authority to regulate gambling.
Tribal and Class Action Litigation
Kalshi also faces challenges outside the state-regulator context. Tribal governments in both California and Wisconsin sued Kalshi in federal court, alleging Kalshi’s sports event contracts violate the Indian Gaming Regulatory Act (IGRA), tribal-state compacts, and federal advertising laws.[11] The Northern District of California denied injunctive relief, holding that IGRA does not apply to third-party platforms like Kalshi and that federal law expressly exempts CFTC-regulated transactions from “illegal internet gambling.” That ruling marked an early and significant victory for Kalshi, though the suit in Wisconsin remains pending.
Finally, in November 2025, a putative nationwide class of Kalshi users sued the company in federal court, alleging that Kalshi violated state gambling laws and misled customers about how its platform operates.[12] The suit marks the first major consumer class action against a prediction market and expands the litigation beyond regulatory authority into consumer protection and market-fairness claims.
Why This Matters / Key Takeaways
The Kalshi litigation illustrates the regulatory risk that accompanies innovation. For companies operating in regulatory gray areas, Kalshi’s experience highlights the importance of thinking beyond federal approval and anticipating how state regulators, or even private plaintiffs, may respond.
More broadly, the dispute shows how much regulatory authority can turn on a product’s classification. As with cryptocurrencies, fantasy sports, and other data-driven products, small differences in how a product is labeled (e.g., derivative versus wager, market versus gambling) can determine which regulator applies and which rules govern. The outcome of the Kalshi cases will inform not only sports-related event contracts, but future efforts to build markets around other uncertain events.
From a litigation and compliance perspective, the takeaway is straightforward: businesses at the intersection of regulated markets and gaming must plan for uncertainty. A conservative strategy assumes state laws apply and limits exposure accordingly; a more aggressive approach seeks clarity through litigation, with the potential upside and cost that entails. Until courts or Congress provide clearer guidance, companies in or adjacent to prediction markets should proceed cautiously, build flexible compliance strategies, and closely monitor how this rapidly evolving legal landscape 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 (9th 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 (3rd 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).
