Judge Rules in Favor of State Regulators in Kalshi Sports Betting Case

Kalshi Faces Legal Setbacks Amid State and Federal Regulatory Dispute

Kalshi, a leading platform in the prediction market industry, is encountering significant legal obstacles after a federal judge in Nevada determined that its sports-related contracts are governed by state gaming laws rather than falling solely under the oversight of the Commodity Futures Trading Commission (CFTC). On November 26, U.S. District Judge Andrew Gordon overturned a previous injunction that had protected Kalshi from state-level enforcement, thereby restricting the company’s ability to offer contracts based on the outcomes of sporting events.

Judge Gordon criticized Kalshi’s interpretation of the Commodity Exchange Act, describing it as an overly broad reading that would disrupt established principles of federal and state authority over gambling regulation. As a result, Kalshi now faces the possibility of immediate criminal action from Nevada regulators and has responded by filing an emergency motion to pause the enforcement of the ruling while it appeals the decision.

State vs. Federal Oversight: Ongoing Tensions

This court decision underscores the ongoing struggle between state and federal agencies regarding the regulation of prediction markets. Kalshi maintained that its operations fall under the jurisdiction of the CFTC as a designated contract market, but the judge rejected this argument, viewing it as an attempt to sidestep state gambling laws. Nevada’s position, which the court supported, is that all forms of sports betting—including binary contracts—are subject to state regulation.

The ruling has attracted attention from established sports betting companies and competitors such as DraftKings and Flutter, both of which have seen their stock prices fluctuate as prediction markets gain popularity. Flutter, for example, has cautioned that increased online gaming taxes in the UK could reduce its adjusted EBITDA by $320 million in 2026, highlighting the financial implications for the industry.

Uncertainty and Market Evolution

Analysts point out that the lack of regulatory clarity could reshape the competitive landscape. The CFTC has yet to clarify whether contracts based on sports events should be classified as gambling, leaving platforms like Kalshi and Polymarket to operate in a regulatory gray zone. This uncertainty has prompted traditional bookmakers to explore their own prediction market products, further diversifying the market. Kalshi’s future now depends on the outcome of its appeal and the CFTC’s eventual position, but Judge Gordon’s ruling suggests a possible shift toward greater state regulatory authority, complicating Kalshi’s plans for growth in sports betting.

Growth, Competition, and Industry Expansion

Kalshi’s legal troubles come at a time when its valuation has reportedly climbed to $11 billion after a $1 billion funding round, with total trading volumes exceeding $18 billion. The company’s move into sports betting has intensified its rivalry with Polymarket, another CFTC-regulated platform that has recently been cleared to resume operations in the United States. Polymarket’s CEO, Shayne Coplan, celebrated the platform’s CFTC approval as a significant step toward integrating prediction markets into mainstream finance.

Meanwhile, Robinhood has expanded its presence in the sector by partnering with Susquehanna International Group to launch a new futures and derivatives exchange. Robinhood, which already collaborates with Kalshi to provide event-based contracts, saw its stock rise by 10% as interest in prediction markets continues to grow.