Kalshi and Prediction Markets Face Existential US Legal Battles

Kalshi operates a designated contract market licensed by the Commodity Futures Trading Commission, allowing users to trade event contracts tied to sports, elections and other outcomes. The central dispute is whether sports contracts qualify as swaps under the Commodity Exchange Act and therefore fall under exclusive CFTC oversight, or amount to online gambling subject to state licensing. The outcome could reshape a multibillion-dollar industry that includes Kalshi, Polymarket and other fast-growing platforms.

On Aug. 28, 2026, the Ninth U.S. Circuit Court of Appeals ruled 3-0 that Kalshi was unlikely to show federal law preempted Nevada’s gambling regulations, upholding the dissolution of an injunction protecting its sports contracts. The decision conflicts with an April 6 ruling by the Third Circuit, which voted 2-1 to shield Kalshi from New Jersey enforcement. New Jersey faced a Sept. 3 deadline to seek Supreme Court review, while the new circuit split increased the likelihood that the justices will ultimately settle the jurisdictional dispute.

Kalshi operates a designated contract market regulated by the Commodity Futures Trading Commission and argues that its event contracts are federally supervised derivatives rather than wagers subject to state licensing. The dispute tests where financial regulation ends and gambling oversight begins, with major implications for prediction-market operators, state consumer-protection regimes and the CFTC’s claim to exclusive jurisdiction under the Commodity Exchange Act.

On Aug. 28, 2026, a unanimous three-judge panel of the U.S. Court of Appeals for the Ninth Circuit held that Kalshi had not shown the Commodity Exchange Act was likely to preempt Nevada gaming laws. The court affirmed the dissolution of an injunction covering sports-event contracts and sent questions involving election contracts back to the district court. No monetary damages were awarded. The decision conflicts with the Third Circuit’s approach, prompting the CFTC to signal a potential Supreme Court fight.

Kalshi is a CFTC-registered designated contract market that lets users trade event contracts tied to sports, elections and other outcomes. Its legal strategy rests on federal pre-emption: the company argues the Commodity Exchange Act gives the Commodity Futures Trading Commission exclusive authority over its exchange, while states contend much of the activity is gambling subject to local licensing and consumer-protection laws. The outcome will determine whether prediction markets can operate under one national framework or face a state-by-state patchwork.

On Aug. 13, King County Superior Court Judge John McHale ordered Kalshi to block Washington users from most contracts, requiring initial IP and residency geofencing by Aug. 19 and a multi-source system by Sept. 2. Kalshi sought reconsideration on Aug. 20, citing Washington’s decision not to enforce equivalent restrictions against Crypto.com pending appeal. Separately, 44 state attorneys general challenged the CFTC’s 267-page proposed rule after comments closed July 27. The CFTC invoked emergency authority on Aug. 11 to keep Kalshi operating amid New York’s July 31 suit, which seeks more than $36 billion in damages.

Kalshi, designated as a contract market by the Commodity Futures Trading Commission in 2020, lets users trade contracts tied to outcomes ranging from sports and elections to economic data. Washington state argues those products amount to unlicensed gambling, while Kalshi says federal derivatives law gives the CFTC exclusive authority. The dispute is important because its outcome could determine whether state gambling rules can constrain a fast-growing industry built around federally regulated event contracts.

King County Superior Court Judge John McHale on Aug. 13 ordered Kalshi to stop accepting new positions in most markets by Aug. 19 and implement geofencing by Sept. 2. Noncompliance could trigger penalties of $120,000 a day. The order allows trading tied to commodities, climate, economics and finance to continue, while restricting categories including sports. Washington Attorney General Nick Brown filed the underlying lawsuit on March 27, accusing Kalshi of violating the state Gambling Act and Consumer Protection Act.

Kalshi is a Commodity Futures Trading Commission-regulated designated contract market where users trade yes-or-no event contracts that settle at a maximum of $1. The New York State Gaming Commission argues that sports contracts constitute gambling subject to state law. The dispute centers on whether the federal Commodity Exchange Act preempts state enforcement and could also affect the platform’s cost of operating across state lines.

On July 7, 2026, U.S. District Judge Analisa Torres of the Southern District of New York denied Kalshi’s motion for a preliminary injunction. She found that the company had not sufficiently shown that federal law preempted New York’s gambling laws and that the associated compliance costs did not constitute irreparable harm. Kalshi filed a notice of appeal the same day, and the case entered the U.S. Court of Appeals for the Second Circuit on July 8 under docket number 26-1835.

Kalshi is a prediction-market platform regulated by the U.S. Commodity Futures Trading Commission (CFTC) that allows users to trade contracts based on sporting-event outcomes. Illinois has subjected such products to state sports-betting restrictions, sparking a dispute over whether federal derivatives oversight preempts state intervention. The outcome could also affect how prediction markets operate across states.

Kalshi recently sued Illinois officials to challenge a provision in the state's newly enacted budget bill that is scheduled to take effect on July 1. The company argues that restrictions on sporting-event contracts encroach on the CFTC's exclusive regulatory authority. It is seeking to block enforcement, saying the provision would immediately restrict its products and cause irreparable harm that monetary damages could not adequately remedy.

Kalshi is a designated contract market regulated by the US Commodity Futures Trading Commission, allowing users to trade event contracts tied to outcomes including sports results. Each contract settles at a maximum of $1. New Jersey's Division of Gaming Enforcement classified the activity as unlicensed sports betting, raising the question of whether federal derivatives regulation preempts state law.

On April 6, 2026, the US Court of Appeals for the Third Circuit voted 2–1 to uphold a preliminary injunction issued on April 28, 2025. The court found that sports event contracts are swaps under the Commodity Exchange Act and fall under the CFTC's exclusive jurisdiction. On June 26, the state separately requested an extension until September 4 to file a petition for a writ of certiorari with the Supreme Court.

Kalshi is a designated contract market approved by the U.S. Commodity Futures Trading Commission, or CFTC, and argues that its event contracts are federally regulated derivatives. Arizona maintains that the platform accepts wagers on sports and elections, amounting to unlicensed gambling. The case turns on whether federal commodities law preempts state enforcement and could reshape how prediction-market oversight is divided across the United States.

Arizona Attorney General Kris Mayes charged KalshiEx LLC and Kalshi Trading LLC on March 17, 2026, with 20 misdemeanor counts, including four related to election betting. The indictment did not specify the amount involved or damages sought. U.S. District Judge Michael Liburdi first paused the prosecution on April 10 and issued a preliminary injunction on May 5, finding that the CFTC may have exclusive jurisdiction over the contracts at issue.

Kalshi, an event-contract exchange founded in 2018 and launched in 2021, lets users wager on real-world events through “yes/no” contracts. It expanded into politics in 2024 and sports in 2025. The dispute centers on whether the federal Commodity Exchange Act preempts state gambling laws, with implications for the regulatory boundaries of prediction markets across the United States.

Washington Attorney General Nicholas Brown sued Kalshi in King County Superior Court on March 27, 2026, alleging that it offered wagering on elections, sports and judicial events without a license from the Washington State Gambling Commission. Contracts cost $0.01–$0.99 each and pay the winner $1. The state is seeking a permanent injunction, restitution for all losses incurred by residents, disgorgement of proceeds and penalties for each violation. The complaint did not specify a total amount.

Prediction markets such as Kalshi and Polymarket allow users to trade on the outcomes of political, sporting and other events, but it remains unsettled whether their contracts constitute gambling or financial hedging instruments governed by federal commodities law. The dispute will shape the jurisdictional boundary between the CFTC and state gambling regulators, as well as platforms’ ability to operate across state lines.

As of July 19, 2026, prediction-market operators faced about 20 lawsuits, with 11 states having taken legal action. The CFTC asserted full jurisdiction over the contracts, but Kalshi lost an Ohio case involving sports betting. Users could therefore face state-specific restrictions, account compliance requirements and cross-border trading risks.