Kalshi court losses pile up as judges refuse to block state gambling laws
The Second Circuit upheld lower‑court rulings that Kalshi failed to demonstrate a likelihood of success on the merits, denying a preliminary injunction that would have blocked New York and Connecticut gambling statutes. The panel’s decision aligns with a parallel denial of Coinbase’s similar request in Connecticut, signaling a consistent judicial reluctance to pause state enforcement while appeals proceed. Earlier this year, the Sixth Circuit unanimously ruled that Ohio and Tennessee could also apply their gambling laws to Kalshi’s offerings, expanding the geographic scope of the legal pressure. Together, these rulings mean Kalshi must continue operating under the threat of state‑level actions that could restrict or shut down its event‑based contracts in multiple jurisdictions.
The broader backdrop is a federal‑state clash over who controls prediction markets. The Commodity Futures Trading Commission, backed by the Trump‑era administration, has sued ten states—including Arizona, Illinois, and Wisconsin—asserting exclusive jurisdiction because it classifies Kalshi’s contracts as “swaps” under the Commodity Exchange Act. That argument succeeded in the Third Circuit, where judges concluded New Jersey cannot regulate sports‑related prediction contracts, labeling them CFTC‑licensed swaps. However, other appellate panels have found that not all Kalshi wagers fit the swap definition, allowing states to retain regulatory authority. This split jurisprudence mirrors ongoing disputes involving other platforms such as Polymarket, and underscores a fragmented regulatory landscape where federal preemption is not uniformly applied.
Looking ahead, the next pivotal moment will be the Supreme Court’s response to New Jersey’s petition, which has attracted a brief from 39 states and D.C. A favorable ruling could cement CFTC preemption and provide a nationwide safe harbor for prediction markets. Conversely, if the Court declines or narrows the Third Circuit’s reasoning, Kalshi may face a patchwork of state bans, increasing compliance costs and threatening its growth strategy. Stakeholders should monitor any settlement talks between the CFTC and state attorneys general, as well as potential legislative efforts to clarify the status of prediction contracts.
Key Takeaways
The Second Circuit’s denial of a preliminary injunction leaves Kalshi exposed to New York and Connecticut gambling enforcement.
The Sixth Circuit’s unanimous ruling extends state‑level vulnerability to Ohio and Tennessee, adding to the platform’s legal exposure.
The CFTC’s claim that Kalshi’s contracts are swaps secured a win only in New Jersey, highlighting a split appellate view on federal preemption.
The Supreme Court’s pending decision on New Jersey’s petition will likely determine whether prediction markets enjoy nationwide federal protection or remain subject to a mosaic of state regulations.
About the Source
This analysis is based on reporting by Ars Technica. Here is a short excerpt for context:
Kalshi can't avoid gambling law by claiming it doesn't offer gambling, state AG says.Read the original at Ars Technica
