- Kalshi filed a federal lawsuit against New York regulators to prevent them from classifying its sports prediction markets as illegal gambling.
- The lawsuit followed a cease-and-desist order from the New York State Gaming Commission demanding the halt of Kalshi’s sports-event contracts.
- The company argues that federal law through the Commodity Futures Trading Commission (CFTC) overrides state gambling laws for such contracts.
- Courts in New Jersey and Nevada have granted Kalshi preliminary injunctions, while Maryland courts ordered a halt to sports-event contracts.
- A judge recently denied a similar injunction for rival crypto.com, ruling that sports event contracts do not qualify as swaps under the Commodity Exchange Act.
Kalshi, an event-contract platform, initiated a federal lawsuit on Monday against New York regulators. The goal is to block the state’s gaming commission from treating its sports prediction markets as illegal gambling. This action came shortly after a cease-and-desist letter from the New York State Gaming Commission on October 24, which threatened civil penalties if Kalshi did not stop trading sports-event contracts.
The company claims that federal law, specifically regulations overseen by the Commodity Futures Trading Commission (CFTC), preempts state gambling rules for contracts traded on CFTC-regulated platforms. The New York cease-and-desist letter demands that Kalshi immediately halt sports-event contracts to avoid civil or criminal penalties.
Daniel Wallach, a legal expert specializing in gaming law, explained that Kalshi filed its lawsuit preemptively to reach federal court first. This move allows the lawsuit to focus narrowly on whether federal law preempts state authority, rather than debating the legality of the contracts as gambling. By doing so, Kalshi avoids state court debates over contract legality and shifts the focus to jurisdiction issues.
Kalshi has seen mixed court results. It won preliminary injunctions in New Jersey and Nevada, enabling its operations to continue temporarily. However, in Maryland, a judge ordered a suspension of sports-event contracts, though operations are still ongoing as the case proceeds. Recently, U.S. District Judge Andrew P. Gordon in Nevada denied an injunction request from Crypto.com, Kalshi’s competitor, ruling that sports events do not meet the federal definition of swaps under the Commodity Exchange Act.
Wallach noted that while some courts accepted Kalshi’s argument that sports contracts qualify as swaps regulated exclusively by the CFTC, others like Judge Gordon in the Crypto.com case disagreed. The judge concluded that sporting event outcomes are not considered swaps, based on congressional intent and legislative history, meaning the CFTC’s exclusive jurisdiction does not extend to them.
As a result, Crypto.com must restrict access to Nevada residents by November 3 and close existing sports-event positions there. Other states such as Arizona and Illinois, which have issued warnings against prediction markets, might soon engage in similar legal disputes with Kalshi. More litigation involving Kalshi, Robinhood, and Crypto.com is expected as recent court decisions tend to favor state authorities.
Kalshi and Crypto.com have not yet responded to requests for comment.
For further details, see the official filing and the Nevada Gaming Control Board’s notice.
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