Federal and state authorities are intensifying a legal battle over sports event contracts following the dissolution of a preliminary injunction against Kalshi by a federal judge in Nevada, which had prevented state regulators from enforcing a cease-and-desist order.

Kalshi, which facilitates prediction markets based on real-life events, contends that its registration with the Commodity Futures Trading Commission (CFTC) places it under federal oversight. Nevada regulators argue that the contracts linked to sporting results are classified as gambling and thus necessitate a state license.

Judge Dismisses Exclusive CFTC Jurisdiction Claim

On Tuesday, US District Judge Andrew Gordon ruled that Kalshi’s view “would place all sports betting nationwide under the jurisdiction of the Commodity Futures Trading Commission (CFTC)” rather than allowing state and tribal regulators to govern. He remarked that this stance “disrupts decades of federalism concerning gaming regulation, conflicts with Congressional intent … and is untenable.”

This ruling dissolves the injunction which had been in place since April, when Kalshi first contested Nevada’s March cease-and-desist order. Earlier this month, Gordon hinted that there may be a shift in the case’s direction.

Kalshi has expressed disagreement with the ruling and plans to file an appeal.

“We respectfully disagree with this decision,” stated a representative from Kalshi. “As recognized by other courts, Kalshi serves as a regulated, nationwide exchange for real-world events and is under exclusive federal jurisdiction. This contrasts sharply with what state-regulated sportsbooks and casinos provide. We are reviewing the ruling and plan to appeal to the Ninth Circuit.”

Divergence in State Court Decisions

Various courts across different states are determining similar issues, resulting in contrasting rulings. A court in New Jersey previously granted Kalshi an injunction, while a Maryland court denied the company’s request for relief, which is currently under appeal.

A judge in California has denied a motion from tribal groups seeking to impede Kalshi’s operations on tribal territory, ruling that CFTC oversight indicates the event contracts do not infringe the Indian Gaming Regulatory Act. In Wisconsin, the Ho-Chunk Nation has initiated a related lawsuit.

Moreover, litigation is ongoing in New York, Massachusetts, and Ohio, with a hearing in Massachusetts slated for December 9.

Gordon referenced a prior Nevada case involving Crypto.com, indicating that outcomes in sports do not satisfy the definition of swaps under the CEA.

“In Crypto, I ruled that event contracts dependent on the results of sports events are not swaps, and as such, do not fall under the CFTC’s exclusive jurisdiction,” he stated.

Nevada Authorities Pursue Enforcement Action

Nevada Gaming Control Board Chairman Mike Dreitzer indicated that the agency will actively pursue action against Kalshi and expressed ongoing concerns about the company’s activities in the state. Kalshi plans to request a stay of the ruling while its appeal is pending.

“The Board will vigorously contest that motion and will promptly pursue legal avenues to halt Kalshi’s unlawful operations,” he communicated in a notice.

As it stands, sports betting is legal in 39 states and Washington, D.C. Nearly two dozen state and tribal authorities have taken steps to prevent prediction markets from providing sports-oriented products within their jurisdictions.

Repercussions for Licensed Operators Exploring Similar Offerings

Following the participation of executives from DraftKings and FanDuel at the Global Gaming Expo in Las Vegas, both companies declared intentions to develop prediction market products. Regulators in various states have warned that launching similar contracts without specific approval could jeopardize operators’ licenses.

Separately, Gordon denied a request from stock-trading platform Robinhood to allow its users access to Kalshi’s sports contracts. Nevada regulators reported that Robinhood had agreed to cease offering new contracts during the legal proceedings.

Kalshi aims to request a stay to maintain its operations during the appeal process.