In recent days, Kalshi flip-flopped a pair of court rulings in its cases against Nevada and New Jersey, which are among the most significant prediction market cases given their connection to America’s top two gaming markets.
On Friday, Judge Jason Woodbury of Nevada’s First Judicial District Court granted Nevada a preliminary injunction against Kalshi, and while that language is being finalised, Woodbury opted to extend a temporary restraining order preventing Kalshi from listing sports, election and entertainment event contracts for Nevada users by an additional 14 days.
Kalshi was forced to begin restricting the contracts 20 March after the first TRO was issued, and this represents the first state-level action Kalshi has complied with. This latest extension will run through 17 April, with both sides scheduled for a hearing before the 9th Circuit Court of Appeals on 16 April in San Francisco. In addition to Kalshi, Nevada also has ongoing cases against Robinhood and Crypto.com that are scheduled for hearings that day.
According to Reuters, Woodbury appeared unmoved by Kalshi’s federal preemption argument, and called sports betting and sports contract trading “indistinguishable” from each other. He ultimately held that prediction market trading “is a gaming activity that is prohibited” under state law.
In a statement, Nevada Gaming Control Board Chairman Mike Dreitzer said he was “very pleased” with the ruling and vowed to “continue to vigorously enforce Nevada law to safeguard gaming in our state”. Kalshi did comment on the ruling.
New Jersey victory for Kalshi
Not long after the Nevada setback, however, Kalshi secured a significant win Monday against New Jersey in the Philadelphia-based 3rd Circuit Court of Appeals.
A three-judge panel voted 2-1 to uphold a lower court’s ruling in favour of Kalshi, affirming the platform’s argument that it cannot be subjugated to state gaming regulation, only federal derivatives law. This represented the first of potentially many federal appeals court rulings on prediction markets.
In the majority opinion authored by Judge David Porter, the court ruled that Kalshi “has met the burden for preliminary injunctive relief” and “has demonstrated a reasonable chance of success on its argument that the Commodity Exchange Act (“the Act”) preempts otherwise applicable state law”. In ruling for Kalshi, the panel determined that both field and conflict preemption apply.
“New Jersey frames the issue broadly (regulating all sports gambling) rather than narrowly (regulating trading on federally designated contract markets),” Porter wrote. “The text of the Act suggests that the narrow framing is the better reading. The Act preempts state laws that directly interfere with swaps traded on DCMs. Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed DCM, so the CFTC has exclusive jurisdiction.”
Kalshi CEO Tarek Mansour did respond to that ruling, calling it “a big win for the industry and millions of users” on social media. Conversely, for the dissenting opinion, Judge Jane Roth was blunt in her dismissal of Kalshi’s arguments, which she felt were disingenuous.
“I see Kalshi’s actions as a performative sleight meant to obscure the reality that Kalshi’s products are sports gambling,” Roth wrote. “Because Kalshi is facilitating gambling, it can be subjected to state regulation.”
Widening legal war for Kalshi, states
The two rulings are the latest flashpoints in what has become a widening legal battle between prediction markets, states and the federal government. The movement started in earnest in late 2024, when Kalshi prevailed against the Commodity Futures Trading Commission in its fight to offer political contracts in the run-up to that year’s presidential elections.
Since then, Kalshi and others have grown to offer contracts on sports, pop culture and more. This has spawned a new wave of litigation that continues to grow. By now, just about every legal avenue involving prediction markets is being explored, including:
- Federal court cases
- State court cases
- Cases involving tribal entities
- Civil cases
- Criminal case (Arizona)
- Class-action lawsuits
- The federal government suing states
This last point is notable, as the CFTC has become increasingly supportive of prediction markets under Chairman Michael Selig. In response to the rising number of legal challenges regarding the commission’s right to govern the exchange platforms, the CFTC went on the offensive by filing suit against Illinois, Connecticut and Arizona last week. Rob Schwartz, former CFTC general counsel, said the lawsuits were “absolutely unprecedented” on social media.
“The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators,” Selig said in a statement.
Under Selig’s direction, the CFTC announced earlier this month it has issued an advanced notice of proposed rulemaking for prediction markets. A public comment period will run through 30 April, and the process will continue thereafter.
“In particular, the Commission is seeking information and public comment on statutory core principles and Commission regulations that apply to prediction markets, the types of event contracts that may be prohibited as contrary to the public interest, cost-benefit considerations related to prediction markets, and other topics,” the notice reads.
Jess Marquez
Jess has covered the global gaming industry since 2022. A native of Reno, Nevada, he’d like to note that it’s Ne-va-da, not Ne-VAH-da.
