U.S. Judge says states can regulate segments of Kalshi prediction markets

Earlier this week (November 2025), the court rejected Kalshi’s argument that its sports event markets fall exclusively under the authority of the U.S. Commodity Futures Trading Commission (CFTC), where the platform is registered as a designated contract market. The judge found instead that Nevada’s gaming laws apply to certain sports-related contracts, and the case is now expected to move to the Ninth Circuit Court of Appeals.

For years, a core attraction of U.S. prediction markets – from Kalshi’s event contracts to crypto-native platforms such as Polymarket – has been the idea that federal derivatives law preempts state gaming statutes, sparing operators from navigating dozens of separate licensing regimes. Analysts say the Nevada decision challenges that assumption by opening the door for state-by-state oversight of at least some categories of markets.

Kalshi’s products have been treated as “swaps” under the Commodity Exchange Act, which places them under CFTC jurisdiction and, in Kalshi’s view, shields the exchange from state gambling enforcement. That theory underpinned the company’s 2023 lawsuit against the CFTC over political event markets, in which a federal court later sided with Kalshi and cleared the way for certain election-related contracts.

After that win, Kalshi expanded into additional event categories, including contracts tied to sports results. Earlier this year, it sued Nevada’s Gaming Control Board and Gaming Commission, seeking to block them from bringing an enforcement action over those sports markets and arguing that the state was intruding on the federal government’s exclusive authority over futures trading on CFTC-regulated exchanges. Kalshi initially secured a preliminary injunction protecting it from state action. 

In this week’s order, however, Judge Andrew Patrick Gordon of the District of Nevada dissolved that protection and concluded that event contracts based on sporting outcomes are not swaps and therefore do not fall within the CFTC’s exclusive remit.

In his opinion, Gordon pointed back to an earlier case he handled and wrote that Congress did not intend for federally regulated futures exchanges to become “nationwide gambling venues” on every conceivable topic while shutting out state regulators, particularly when it expanded the swap framework in 2010.

Nevada’s filings in the case drew a sharp line between commodities trading and gaming and between sports-related bets and contracts linked to political or economic outcomes. State lawyers told the court this week that, while they will refrain from immediate enforcement while Kalshi’s request for a stay is considered, they believe the platform has continued to operate unlawfully in Nevada even as other firms – including large retail trading brands such as Crypto.com and Robinhood – have entered into arrangements to avoid conflict with state regulators during appeals.

Kalshi has asked the court to pause the ruling while it prepares an appeal to the Ninth Circuit, pointing to a patchwork of federal decisions that reach different conclusions about how far state law can reach into prediction markets and derivatives venues. The company argues that without a stay, it faces the risk of state enforcement action that conflicts with its federally supervised status.

Jaret Seiberg, a policy analyst at TD Cowen, told clients this week that the broader question of who controls prediction markets – states or Washington – is increasingly likely to land before the U.S. Supreme Court, given the diverging views in lower federal courts. Even if the case is fast-tracked, he said, a final resolution could stretch into 2027 or beyond.

Seiberg also suggested that states may ultimately have the advantage, noting that gambling has traditionally been regulated at the state level and that Congress could step in on the side of state authorities even if prediction market operators prevail in some court battles. One possible compromise he outlined would allow states to tax and regulate sports-linked event contracts while not forcing out exchanges that already hold CFTC-issued designated contract market licenses.

For now, the Nevada case keeps a key uncertainty hanging over prediction markets, including crypto-adjacent platforms that rely on federal derivatives law for legal clarity. The appeals process will determine whether sports-based contracts remain primarily a state-regulated product or retain a path to operate under a unified federal framework.