Kalshi, a New York-based prediction market launched in 2021, allows users to bet on any future event— from presidential election results to the price of Bitcoin at the end of the year to the number of points an NBA star will score in a particular game—even in states where certain online betting activities are illegal. The platform has consistently argued that their operations remain outside of the remit of state gambling regulations because the contracts they facilitate fall under the authority of the U.S. Commodity Futures Trading Commission (CFTC). The legal foundation for Kalshi's sports betting operations (which reportedly now constitute 90% of the Company’s recent trading volume), however, just suffered a significant setback, as U.S. District Judge Andrew Gordon (District of Nevada) ruled on November 25 that the platform was not exempt from state gambling regulations.

Kalshi maintains that it is exempt from state regulatory authorities because it is not a gambling platform, but a federally regulated financial exchange. It argues that its so-called “event contracts” are “swaps,” a legal form of derivative contract, rather than bets. Unlike traditional sportsbooks, which profit by setting odds and acting as the counterparty (or in common parlance as the "house") that takes a direct loss when a customer wins, Kalshi claims it is a peer-to-peer exchange where users trade contracts with each other. It notes that the platform's revenue comes solely from charging transaction fees, as opposed to profiting when customers lose their bets.

Following this logic, Kalshi holds that its status as an exchange market places it under the exclusive jurisdiction of the CFTC as it relates to Kalshi’s online sports betting offerings for Nevada residents, thus evading the long-established regulatory protocols (from the Nevada Gaming Control Board and Nevada Gaming Commission) that require mobile sports betting operators to first obtain a Nevada gaming license and open a physical casino sportsbook location in the state (as BetMGM, Caesars Sportsbook, and WynnBET do). In its filing, Kalshi states that “the text, purposes, and statutory history of the CEA [Commodity Exchange Act] leave no question that Congress sought to preempt state regulation of futures derivatives on exchanges overseen by the CFTC.” Consequently, Kalshi argues that states have no legal authority to interfere with its operation, even when it facilitates what appear to be sports wagers that are illegal in certain states.

In last week’s decision to dissolve the preliminary injunction, however, Judge Gordon rejected Kalshi's claim that its registration with the CFTC preempts state oversight. In his opinion, he argued that Kalshi's interpretation of the CEA—the legislation that regulates certain financial instruments, such as swaps—was "strained" and would essentially place all sports betting under the CFTC's exclusive jurisdiction, thereby "upset[ting] decades of federalism" regarding gaming law.

Immediately after Judge Gordon’s ruling, Kalshi filed an emergency motion for an administrative stay of the dissolution order to temporarily hold off criminal and civil enforcement proceedings by Nevada regulators while the appeals process is playing out. Kalshi also announced its intent to file a notice of appeal to the Ninth Circuit.

Judge Gordon dissolved the preliminary injunction that he approved in April because, in part, he agreed with the Nevada gaming regulators that the facts of the original ruling have changed. He noted that “Kalshi has issued a new range of contracts” that cannot be considered swaps. Judge Gordon referenced Kalshi’s expansion of its sports event contracts to include pre-built sports parlay and player prop bets at the start of the NFL season. As many have noted, and Kalshi even tacitly admits as it markets itself as having “legalized sports betting in all 50 states,” Kalshi “continues to look and act like a sportsbook.”

In a statement to The National Law Review, Ian Epstein, founder of the sports marketplace PropSwap, agrees that Kalshi is now clearly a sports betting platform. Moving forward, Epstein sees a parallel with the daily fantasy sports (DFS) craze that began around 2015 and which is now dominated by players such as DraftKings and FanDuel. He suggests that states will tailor new regulations to cover prediction-market-based sports betting platforms, and license fees and taxes will be assessed in order for these firms to operate. Epstein further opines, “I do think the sports contracts offered by Kalshi and other prediction markets should be considered sports betting. But I also think they are here to stay.”

The November 24th Nevada ruling threatens to shift the perception and legal protection of prediction markets. Last week, a class-action lawsuit was filed in the Southern District of New York claiming that Kalshi is “operating an illegal online sports betting platform.” In response, Kalshi founder Luana Lopes Lara called the lawsuit baseless in a social media post last Friday. But the company continues to face regulatory action or lawsuits from at least eleven states.

Some analysts see this ruling as revealing a split between federal courts. For example, in the spring of 2025, New Jersey courts acknowledged the merits of Kalshi’s position as they granted preliminary injunctions, but in August a Maryland court rejected its arguments. This is why Jaret Seiberg, an analyst with TD Cowen, predicted in a client note last Wednesday that the U.S. Supreme Court would eventually have to settle tensions between federal commodities law and state gambling regulation.

Ian Epstein of PropSwap, however, feels the recent Nevada reversal is less significant than it may initially seem, arguing it should be viewed as a reflection of Nevada being “staunchly opposed to anything that even resembles betting that doesn’t take place inside of a brick-and-mortar casino.” Lloyd Danzig, the managing partner of Sharp Alpha, which manages a gaming investment fund, offered The National Law Review his insights on the Nevada ruling: “The mixed legislative scoreboard across states suggests this is jurisdictional noise before equilibrium, not a one-way policy tide. This is not unlike other historical innovation-regulation cycles.”

However, in terms of reading the legal risks for Kalshi in the near term, others are less bullish on the platform’s prospects for success in the federal courts. Daniel Wallach, a leading gaming regulatory attorney, has told The National Law Review that a momentum shift began four months ago in the Maryland case – where U.S. District Judge Adam Abelson denied Kalshi’s motion for a preliminary injunction against the Maryland Lottery and Gaming Control Commission – and that Judge Gordon’s turnabout (which relied in part on the Maryland ruling) will have further repercussions. According to Wallach, the lone standing victory for Kalshi in New Jersey “may be on shakier ground now since it relied heavily on the earlier Nevada ruling, devoting several paragraphs to Judge Gordon’s original analysis.”

The New Jersey ruling, now being reviewed by the Third Circuit Court of Appeals, takes on even more importance as it may be Kalshi's last golden ticket. If the court reverses New Jersey’s decision in light of Judge Gordon’s recent ruling, that would dim the prospects for a circuit split in the federal courts of appeals. In that case, “the prospects of a Supreme Court review would decrease significantly,” according to Wallach.

Were it to be that the appeals courts fail to confirm Kalshi’s federal preemption argument, a successful foray by the prediction market platforms into sports betting in the twenty or so U.S. states where it is restricted (e.g., such as Nevada and Texas) would likely need a political resolution. Wallach suggests that Congress could write sports event contracts into the CEA or the CFTC could take a more proactive approach to regulating sports event contracts—although the latter might open the door to more federal litigation over whether the CFTC exceeded its statutory authority by interpreting the CEA in a manner inconsistent with the statute. Wallach explains that “if the federal courts determine that the CEA does not cover sports event contracts, then the CFTC would not be able to promulgate regulations for those kinds of contracts. Any attempt to do so would swiftly be met with lawsuits by states and tribes under the Administrative Procedure Act, alleging that the CFTC acted arbitrarily and capriciously.”

Regardless of the legal hurdles, it is becoming clear that there is rising support for this emerging industry in Washington and in the investment community. Polymarket, for example, the second largest prediction market platform based on trading volume, has recently been cleared by the CFTC to operate in the U.S. Its CEO, Shayne Coplan, further explained in a 60 Minutes interview last evening why he now has such a bullish outlook, after being effectively banned from operating in the US for the last four years. Polymarket is now valued in the private market at $9 billion, after the parent of the NYSE last month agreed to invest $2 billion in the company. “This [administration] is very pro-innovation, and pro-crypto, and pro-Polymarket, which is amazing.”

Sharp Alpha’s Danzig reminds us, “that when regulators are debating a product’s classification while users have already proven demand,” the market can often weather any short-term volatility. He notes that Kalshi’s setback in Nevada “comes on the same day as positive news for Robinhood, Susquehanna, and Polymarket in the space and is reminiscent of other periods of regulatory uncertainty that preceded mainstream adoption and significant revenue generation.”