A federal court in Connecticut has ruled against Kalshi, a prediction market operator, in its attempt to prevent state officials from enforcing gambling regulations on its sports event contracts. This decision hinders the company’s aspirations for federal oversight of its operations.

U.S. District Judge Vernon D. Oliver determined that Kalshi’s sports event contracts do not meet the criteria for “swaps” as defined by the Commodity Exchange Act (CEA), thereby dismissing a significant argument made by Kalshi to contest state regulatory authority.

“Kalshi’s contracts related to sports events do not fulfill this aspect of the legal definition of a swap because they are not contingent upon the occurrence or non-occurrence of an underlying sporting event,” wrote Oliver. “Instead, the contracts are based upon specific outcomes or events within the game.”

According to Oliver, considering these outcomes as distinct events strays from the conventional interpretation of the term.

This ruling permits Connecticut officials to enforce state gambling laws against Kalshi, although the decision does not mandate any specific enforcement actions.

The judge also stated that even if Kalshi’s contracts were deemed swaps, the CEA would not override Connecticut’s gambling regulations.

“The Court refrains from determining that these sports bets qualify as swaps under the CFTC’s jurisdiction or that Congress has explicitly removed Connecticut’s authority to manage sports betting,” Oliver indicated.

Oliver highlighted that Kalshi has marketed its platform as providing “legal sports betting across the nation” and noted the traditional state regulation of sports betting.

“Due to the significant public interests and risks that gambling entails, sports wagering has historically fallen under state regulations,” Oliver added.

Additionally, Oliver concluded that Kalshi has not shown a strong likelihood of prevailing on the validity of its claims asserting that its sports event contracts are swaps or that Connecticut’s gambling laws are superseded by federal legislation.

Previously, Connecticut’s Department of Consumer Protection issued cease-and-desist orders to Kalshi, Robinhood, and Crypto.com, accusing them of offering sports wagering without proper state licenses.

In response, Kalshi initiated a lawsuit against the Connecticut Department of Consumer Protection and its director Kristofer Gilman, seeking both preliminary and permanent injunctions.

Kalshi contended that Connecticut’s actions clashed with the federal regulatory structure governing derivatives. “These contracts are subject to rigorous oversight by the CFTC and are—importantly—permissible under federal regulations,” the company’s legal team stated.

A representative from Kalshi expressed disagreement with the court’s ruling and mentioned that the company is evaluating its next legal moves. “We respectfully dispute the Court’s determination and are exploring all potential legal avenues.

The ruling from Connecticut adds to a growing list of recent legal obstacles encountered by prediction market operators, with previous requests for injunctions against state regulators by Kalshi also being denied in courts across Wisconsin, Utah, and New York.