Kalshi faces legal setbacks as courts rule prediction markets can be regulated as gambling

The prediction market platform Kalshi is facing intensifying legal challenges across the United States as states move to regulate its sports event contracts as unlicensed gambling. In Connecticut, Attorney General William Tong and Governor Ned Lamont filed a lawsuit seeking to block the company from offering sports-related contracts, arguing they function as traditional sports bets and violate consumer protection laws.

In a significant federal development, the Ninth Circuit Court of Appeals issued a unanimous 3-0 ruling against Kalshi, determining that its sports event contracts are likely sports bets rather than federally regulated swaps. This decision allows states like Nevada to enforce gaming laws against the platform and creates a judicial split with the Third Circuit, which previously sided with prediction markets. The ruling suggests that federal commodities law may not preempt state-level gambling regulations for these specific products.

The legal battle has expanded to include various states, including Arizona, Massachusetts, and New York, all of which have taken action against Kalshi or similar platforms. While the Ninth Circuit ruling specifically targets sports contracts, questions regarding the legality of election-related prediction contracts have been remanded for further consideration. Legal experts suggest the conflict between state gambling authorities and federal financial regulators may ultimately require a resolution from the U.S. Supreme Court.