Kalshi Takes Legal Action Against Nevada and New Jersey Gaming Regulators Over Sports Contracts Ban
Prediction market platform Kalshi has filed lawsuits against gaming regulators in Nevada and New Jersey after receiving cease-and-desist orders that prohibit it from offering sports-related contracts in those states. The legal dispute centers on whether Kalshi's operations should be regulated as gambling under state laws or as financial derivatives under federal oversight.
Regulatory Challenges in Nevada and New Jersey
On March 4, Nevada’s Gaming Control Board (GCB) issued a letter ordering Kalshi to halt its operations in the state, asserting that its event-based contracts amount to an unlicensed sports pool. The letter cited state laws prohibiting unauthorized wagering systems on sporting events. Similarly, on March 27, the New Jersey Division of Gaming Enforcement (DGE) directed Kalshi to stop offering sports-related contracts, stating that such activity violates the New Jersey Sports Wagering Act, which permits only licensed entities to provide sports betting services.
Kalshi's Legal Defense: Federal Oversight vs. State Authority
In response to these regulatory actions, Kalshi argues in its lawsuits that it operates as a federally regulated commodities exchange, and therefore, state-level restrictions do not apply. The company contends that the Commodity Exchange Act grants exclusive regulatory authority to the Commodity Futures Trading Commission (CFTC), preempting state laws on financial derivatives.
“New Jersey’s attempt to regulate Kalshi intrudes upon the federal regulatory framework that Congress established for regulating futures derivatives on designated exchanges,” the company stated in its lawsuit, emphasizing a similar stance in the Nevada case. Kalshi maintains that its contracts, including those based on sports outcomes, are lawful under federal law and subject to rigorous CFTC oversight.
Regulators’ Argument: Gambling vs. Financial Instruments
Nevada and New Jersey regulators argue that Kalshi’s operations constitute gambling rather than financial trading. The Nevada GCB asserts that payouts from Kalshi’s event contracts are based solely on external outcomes, such as sports results, rather than the actions of contract participants—making them akin to traditional sports betting rather than investment instruments.
New Jersey regulators also highlight a constitutional provision that prohibits wagering on college sports events occurring in the state or involving New Jersey teams, reinforcing their stance that Kalshi’s offerings fall within the scope of gambling laws.
Kalshi’s Position on Innovation and Future Legal Battles
Kalshi CEO Tarek Mansour has positioned the dispute as a battle over financial innovation, arguing that prediction markets offer significant economic value beyond traditional gambling. “Prediction markets are a critical innovation of the 21st century, and like all innovations, they are initially misunderstood,” Mansour said. “We are proud to pioneer this technology and stand ready to defend it once again in a court of law.”
While Kalshi acknowledges that state regulations could impose a complex regulatory framework, the company asserts that federal law should take precedence in governing its operations. The outcome of these lawsuits could set a precedent for the future of event-based trading in the U.S., potentially reshaping the regulatory landscape for similar platforms.