Judge Sides with State Regulators in Kalshi's Sports Betting Dispute

Kalshi, a pioneering prediction market platform, faces mounting legal challenges as a federal judge in Nevada ruled that its sports betting contracts fall under state gaming regulations, not the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). The decision by U.S. District Judge Andrew Gordon on November 26 revoked a prior injunction that had shielded Kalshi from state enforcement actions, effectively limiting its ability to offer contracts tied to sports event outcomes. The judge criticized Kalshi's interpretation of the Commodity Exchange Act as a "strained reading" that would upend longstanding federalism principles governing gaming regulation according to legal analysis. Kalshi, which had previously won a high-profile 2024 lawsuit allowing it to list political event contracts, now faces a potential "threat of imminent criminal enforcement" from Nevada authorities and has filed an emergency motion to stay the ruling pending appeal.

The ruling highlights a broader regulatory tug-of-war between state and federal authorities over the classification of prediction markets. Kalshi had argued that its platform operates as a "designated contract market" under CFTC oversight, a claim the judge dismissed as an attempt to evade state laws. The decision aligns with Nevada's stance that sports betting, even through binary contracts, constitutes gambling subject to state control according to the judge's ruling. This conflict has drawn attention from traditional sports betting operators and rivals like DraftKings and Flutter, whose shares have dipped amid the rise of prediction markets. Flutter, for instance, warned that UK tax hikes on online gaming could cut its adjusted EBITDA by $320 million in 2026, underscoring the sector's financial stakes.

Industry observers note that the regulatory uncertainty could reshape the market. While the CFTC has remained silent on whether sports event contracts qualify as gambling, its inaction has allowed platforms like Kalshi and Polymarket to operate in a gray area. This ambiguity has spurred traditional bookmakers to develop their own prediction market offerings, further fragmenting the landscape. For Kalshi, the path forward hinges on its appeal and the CFTC's eventual stance. Gordon's ruling, however, signals a potential shift in favor of state regulators, complicating the platform's ability to scale its sports betting ambitions.

Kalshi's legal woes come as its valuation soared to $11 billion following a reported $1 billion funding round, with total trading volume surpassing $18 billion. The platform's expansion into sports betting has also intensified competition with Polymarket, another CFTC-licensed rival recently cleared to resume U.S. operations. Polymarket's CEO, Shayne Coplan, hailed its CFTC approval as a milestone for integrating prediction markets into the broader financial system. Meanwhile, Robinhood has deepened its involvement in the sector, announcing a joint venture with Susquehanna International Group to launch a futures and derivatives exchange. The brokerage, which already partners with Kalshi to offer event contracts, reported a 10% stock surge as prediction markets gain traction.