A federal judge in Nevada has expressed a tendency to overturn a previous ruling from April that granted Kalshi immunity from gambling regulations by potentially issuing a preliminary injunction in favor of the prediction market operator against the state’s regulatory body.
The upcoming Nevada decision regarding Kalshi’s injunction has elevated discussions on whether prediction markets should be regulated by federal derivatives laws or state gambling regulations, as similar legal challenges arise in various states pertaining to the authority of the Commodity Futures Trading Commission (CFTC).
During a hearing on Friday, US District Judge Andrew Gordon indicated that he is inclined to annul the April ruling that prevented Nevada regulators from enforcing actions against Kalshi, as reported by Bloomberg. Gordon mentioned he is “leaning towards dissolving the injunction” and plans to release a written decision in the next two weeks.
The judge raised concerns regarding whether some of Kalshi’s sports-related contracts fulfill the criteria for derivatives, stating, “Your definition appears so expansive that almost anything can be considered a swap — anything could have a financial impact.” He remarked, “Until recently, nobody viewed sports bets as commodities or as exempt from commodities or swaps regulations until Kalshi’s innovative concepts.”
Kalshi took legal action against Nevada regulators in March after receiving a cease-and-desist notice demanding the cessation of what the state classified as unauthorized gambling activities. The platform asserts that its event contracts qualify as derivatives under federal governance.
In its legal filing, Kalshi stated: “Event contracts exemplify derivatives contracts; they function as a variant of options.” The company posits that since it is registered with the CFTC, its business activities should be governed by federal law rather than state gambling regulations.
Following the hearing, the company reaffirmed its stance: “We are always prepared to present our case in court and will duly heed the judge’s recommendations to confer with state officials,” a representative commented. “In the interim, we will persist in managing our national exchange in accordance with federal legislation.”
The dispute in Nevada is one among several ongoing cases related to Kalshi’s operations. Courts in over a dozen states are evaluating related issues about the applicability of state gambling rules to event contracts.
Just last week in California, a judge dismissed a motion from three tribes aimed at limiting Kalshi’s operations on tribal lands, based on the authority of the CFTC and the Unlawful Internet Gambling Enforcement Act. Previously, a New Jersey judge granted a preliminary injunction that blocked enforcement efforts there.
In Maryland, a judge rejected Kalshi’s request for an injunction. Additional legal proceedings are ongoing in Massachusetts, New York, and Ohio. A total of twenty-two Native American tribes, including the Seminole Tribe of Florida, have filed a brief supporting Ohio’s assertive stance. The Suffolk County Superior Court in Massachusetts is slated to consider the state’s injunction request on December 9.
Several states, among them Arizona, Illinois, and Montana, have issued cease-and-desist letters to Kalshi.
Concerns from state authorities also encompass sportsbook operators, as Nevada regulators have informed licensed operators that the provision of sports event contracts could impact their licensing status. Last week, DraftKings and FanDuel relinquished their licenses and retracted applications for sports betting in Nevada.