What next for US betting markets as Kalshi navigates the federal judiciary? 

Kalshi is a prediction market allowing users to trade contracts on event outcomes. Embroiled in litigation alleging it constitutes unlawful gambling under state law, the platform has repeatedly argued that its products do not amount to gambling and fall under federal commodity regulation. 

Kalshi’s legal argument that its activities fall exclusively under the Commodity Futures Trading Commission (CFTC)’s purview has so far been upheld by federal courts. As a rising number of states weigh in on its ongoing litigation, the legal battle over Kalshi’s offering could end up in the US Supreme Court, with profound effects on the US betting and gaming regulatory framework. 

On 5 May the CFTC voluntarily dismissed an appeal after the US District Court for the District of Columbia permitted Kalshi to offer political events contracts. The views of the Donald Trump-era CFTC are unclear, but state regulators have found themselves in the midst of legal battles as they attempt to assert their enforcement authority. 

Lexology PRO explores Kalshi’s offering, its legal challenges and potential outcomes and risks for businesses. 

What is Kalshi? 

Kalshi – which means ‘everything’ in Arabic – is a digital market enabling betting contracts to be exchanged on anything, including the likes of which party will control the Senate after an election, whether Taylor Swift will release a new album this year, and tomorrow’s temperature. 

The New York-based company was launched in July 2021, allowing users to pick a side of a binary question at a price between 1 and 99 cents. When the opposing yes and no sides total $1 per contract, a trade occurs, and the user with the correct prediction receives the full dollar; the loser nothing. Kalshi charges a transaction fee and does not make money from betting nor acts as ‘the house’. Users trading against each other, not ‘the house’, differentiates sports prediction markets from sports betting, the legal argument runs. 

Kalshi is CFTC-registered as a designated contract market and markets its offering as financial instruments under the Commodity Exchange Act 1936 (CEA). But state gaming regulators are increasingly viewing its products as gambling, which falls under state law. Kalshi rejects this position, saying futures contracts fall exclusively under the federal CFTC’s jurisdiction. 

The CEA established the CFTC, creating federal regulation of commodity futures contracts. CFTC-regulated contracts are not, therefore, illegal gambling under state law and could not be regulated by state gambling agencies, Kalshi says. 

The central legal question focuses on whether the CEA affords the CFTC exclusive authority to regulate Kalshi’s markets or whether state legislators can prohibit them under state law – touching the heart of federalism.  

In litigation so far, federal courts have sided with Kalshi, finding the US Constitution’s supremacy clause – where federal law supersedes state law should the power under discussion not be reserved to states – gives the CFTC exclusive jurisdiction over Kalshi. 

Election betting to sports betting pipeline 

The CFTC can refuse to approve events contracts under the Commodity Futures Modernization Act 2000, which it did with Kalshi. The agency attempted to pause exchanges listing election contracts, claiming they were “contrary to the public interest” – the test to decline sets of events contracts under the law – and constituted illegal gambling. 

Kalshi sued the CFTC, saying the agency had exceeded its authority in banning election contracts. Concurring, the US District Court for the District of Columbia found in September 2024: “Kalshi’s contracts do not involve unlawful activity or gaming, they involve elections, which are neither.” 

Despite arguing its political events contracts differed from sports betting, which is regulated by state authorities, Kalshi moved into sports betting ahead of January’s Super Bowl. It had previously argued in federal court that offering contracts on sports events constituted prohibited gaming contracts. 

Pending litigation: a battle touching the heart of federalism 

Federal 

The CFTC voluntarily dismissed its appeal against Kalshi’s election betting event contracts on 5 May. The appeal, in the Court of Appeal for the District of Columbia, the most senior federal court in which Kalshi’s case has yet appeared, had sought to overturn the district court’s ruling allowing election bets ahead of November’s presidential election. 

As a result, Kalshi’s political events contracts can continue unabated as the district court’s ruling, that political events contracts are lawful under the CEA, stands – for now. 

New Jersey 

In March 2025, New Jersey’s Division of Gaming Enforcement sent a cease-and-desist letter alleging Kalshi’s offering constituted illegal gambling, in violation of state law. On 28 April, Kalshi secured a preliminary injunction against the state regulator preventing it from enforcing the cease-and-desist and halting Kalshi’s operations.  

New Jersey has appealed against the injunction. The US Court of Appeals for the Third Circuit expects all parties to submit legal filings by 31 July. 

Nevada 

After Nevada’s Gaming Control Board issued a similar cease-and-desist order against Kalshi, the platform sued the regulator on 28 March. On 9 April, US district judge Andrew Gordon blocked Nevada’s regulator from enforcing state law on the grounds it is preempted by the CEA, which grants the CFTC exclusive jurisdiction to regulate commodities and futures on designated exchanges. 

Essentially, the judge found federal law permits both sports and election betting and federal law supersedes state law. 

Maryland 

Kalshi has also pursued litigation against the Maryland Lottery and Gaming Control Commission, again arguing its authority to regulate the platform is preempted by federal law. 

Cantrell Dumas, director of derivatives policy at non-profit Better Markets, said in a statement Kalshi has “launched a number of lawsuits to fend off any state regulation of its sports wagering contracts”.  

But “Kalshi’s shifting legal narrative” saw it argue last year election betting activities were differentiated from “pure gambling”, using sporting events as an example. “That was central to its claim that election gambling contracts are fundamentally different from sports wagers and should be allowed,” Dumas said.  

Pressure builds on Kalshi in twisting litigation 

Despite its untrammelled litigation success thus far, Kalshi has a bumpy road ahead. On 17 June, the American Gaming Association (AGA), industry and trade groups representing thousands of members, and a coalition of 34 states plus DC submitted separate amicus briefs in New Jersey’s case. Kalshi’s dispute with New Jersey is in a higher court than its other disputes. 

The AGA said it was concerned the CFTC may not be equipped to carry out the regulatory role traditionally played by state governments, while the 34 state attorneys general said Kalshi’s legal arguments are “farfetched”.  

“Kalshi has creatively interpreted federal commodities law and is now attempting to pass off its sports wagers as derivatives regulated exclusively by the CFTC,” the AGA said. This would upend a long-established system of state gaming regulation, it added. 

As Kalshi works its way through the federal judiciary, what might the consequences be? 

The CFTC has, since Trump’s return to the White House, taken a backseat in challenging Kalshi’s ascendancy. While former Biden-era chair Rostin Behnam sought to restrict Kalshi from enabling election betting, acting director Caroline Pham and the Trump-era CFTC appears reluctant to mount a challenge against Kalshi, having dismissed its own appeal. 

This has empowered Kalshi to rely on its defence it is CFTC-regulated and that the CFTC has exclusive jurisdiction over its products as its platform does not constitute gaming.  

While the Trump-era CFTC’s views are not clear, the president’s nominee to lead the federal agency, Brian Quintenz, previously served on Kalshi’s board of directors. While he said he would divest his remaining stocks should he be confirmed by the US Senate, Democratic senator Amy Klobuchar said in a confirmation hearing: “There will remain a potential appearance of a conflict.” 

The president’s son, Donald Trump Jr, joined Kalshi as a strategic adviser on 13 January, one week before his inauguration. 

Potential outcomes and impact on businesses 

The federal judiciary will ultimately rule whether Kalshi’s model is legal and what role state regulators play in the burgeoning events contract market. Kalshi has been successful in litigation so far, and new platforms may enter the market if the courts uphold the legal argument its model falls exclusively under the CFTC’s purview. 

State regulators will need to reassess how they approach contract exchange platforms if the courts rule in Kalshi’s favour, which could reform the balance between state regulation, which has historically regulated gambling, and federal oversight.  

Prediction markets may placate traditional political prediction models if seen as legitimate, real-time tools for predicting events outcomes. Established political science models, such as FiveThirtyEight.com, have long analysed data to explore political outcomes. While that platform’s election model suggested a near-even likelihood of Kamala Harris and Donald Trump winning the presidency in the days before November’s election, Kalshi’s contracts suggested a more convincing Trump win – and was correct. 

“Prediction markets have proved themselves to be the antidote [toward misinformation and biased journalism],” Kalshi chief Tarek Mansour asserted to his X following on 30 March. “They mobilise the most elegant and effective properties of free financial markets towards the pursuit of unbiased truth.” 

“With trust in traditional institutions at an all-time low, people are turning to prediction markets at an astronomical pace. The growth of the ecosystem in the last year is a testament to how important they have become to the American people,” he added. 

And how Trump-era federal agencies and regulators navigate regulatory oversight and enforcement under an administration intent on deregulation remains unseen. But the CFTC has already proven, in abandoning its appeal against Kalshi, it is charting a new course.