Prediction Markets v. State Gaming Laws: The Kalshi Litigation Gamble

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.

https://natlawreview.com/article/prediction-markets-v-state-gaming-laws-kalshi-litigation-gamble#google_vignette