Kalshi and Robinhood fought to protect their sports event contract offerings in Nevada during a double header on Friday.
After engaging with key parties in Friday’s court hearing, Judge Andrew Gordon said he was leaning towards dissolving the preliminary injunction he previously awarded to Kalshi. He then advised the parties to mediate.
If Gordon dissolves Kalshi’s preliminary injunction, then the exchange would appeal to the Ninth Circuit. The company’s mediation with Nevada will also determine whether it faces penalties for offering sports contracts in Nevada during the court proceedings.
While having its preliminary injunction dissolved would be a setback for Kalshi, the ongoing cases in the Third and Fourth Circuits (appellate courts) will be much more consequential for determining the long-term viability of nationwide sports contracts. And depending how the various cases play out, Judge Gordon himself agrees that signs point to the legal question over sports event contracts ending up in the Supreme Court.
How we got here: Nevada’s hearing over sports event contracts
- April – Judge Gordon grants Kalshi a preliminary injunction against Nevada gaming regulators, finding that because the CFTC has exclusive jurisdiction over swaps, Kalshi is likely to prevail “on the merits.”
- August – After Kalshi’s victory, Robinhood files its own request for a preliminary injunction to stop Nevada from enforcing its sports betting laws against the sports contracts it offers in the state.
- October – Crypto.com seeks a preliminary injunction to protect its sports contracts, but Judge Gordon denies the request, arguing that contracts based on event outcomes rather than occurrences are prohibited; Crypto.com agrees to geofence Nevada until there’s a final ruling.
- Following the Crypto.com decision – Nevada regulators ask Judge Gordon to dissolve Kalshi’s preliminary injunction, citing his new reasoning about prohibited event-outcome contracts.
- Most recent step (Friday’s hearing) – The court holds a hearing where all parties present arguments on whether Kalshi’s preliminary injunction should be dissolved in light of the Crypto.com ruling.
Kalshi defends previous arguments in Nevada hearing
Judge Gordon opened the hearing by noting he had 19 pages of questions. Kalshi’s counsel, Will Havemann, began by reiterating that the CFTC has exclusive jurisdiction over sports contracts listed on a designated contract market.
Gordon challenged Havemann on Kalshi’s inconsistent legal positions on federal court deference. In their previous election contract case in the District of Columbia District Court, Kalshi argued courts should not defer to agency decisions, but in their sports contract case, their position is that courts should defer to the CFTC regarding the definition of swaps.
Havemann explained that in the election contract case, Kalshi was challenging a final administrative ruling by a federal agency (the CFTC), so the case involved federal administrative law and the Administrative Procedure Act (APA). That is why federal courts and deference principles applied. In contrast, in the sports contract case, Kalshi argues that Nevada was rejecting the federal authorization and regulating through state law. Kalshi’s position is that sports contracts should be reviewed through the APA process federally, not via state civil law, challenging the state’s regulatory authority.
Gordon pushed back, asserting his own authority to interpret the definition of swaps (under federal law or the Commodity Exchange Act).
Havemann then went into the limits of event contracts. The definition of swaps requires consequences outside of the event itself. Gordon asked about Kalshi’s contract on whether two people would hug when they met. Havemann argued that the hug had potential economic consequences as a signal for diplomacy, and that the CFTC had the chance to review those contracts and chose to allow them to remain listed.
Sports betting, gaming or swaps?
Gordon also brought up that Kalshi has advertised itself as “sports betting in all 50 states.” Havemann responded that many speakers and media outlets use the term “bet” colloquially, but the CFTC still had exclusive jurisdiction over contracts traded on a designated contract market (DCM).
He also reiterated that swaps on sports outcomes remain swaps if they are traded on exchanges, so sports wagers on sportsbooks or sports betting sites would not fall under CFTC jurisdiction. Gordon asked whether Nevada sportsbooks could offer wagers on the future price of corn. Havemann responded that if there was a regulatory scheme for regulating wagers on future corn prices, sportsbooks could potentially do so.
The judge also brought up that in the D.C. case, Kalshi argued that gaming must involve a game, contrasting its election contracts with games, which lack consequences external to the parties of the contract. Havemann responded that in the D.C. case, Kalshi was differentiating between elections and sports games. He also noted that Kalshi’s counsel qualified that statement by saying that there could potentially be exceptions, reiterating that the CFTC allowed the contracts to be listed, and the agency had exclusive jurisdiction.
Gordon retorted that he had to interpret statutes to avoid “absurd results,” remaining skeptical that something like a hugging contract was part of congressional intent. He ended by arguing that Kalshi’s definition of a swap was too broad; he also invoked congressional intent and state gaming regulation to show that the CFTC should not allow sports wagers on DCMs.
Havemann responded that the statutory language in the Commodity Exchange Act (CEA) was a better way to judge congressional intent. He also argued that state regulation of gaming was partially a way for states to try to regulate some derivatives.
Irreparable harm and balance of hardships
Gordon also challenged Kalshi on the cost of geofencing. Havemann argued that geofencing would be expensive, and that the potential criminal proceedings in state courts would be harmful.
Gordon then pressed Havemann on Kalshi’s KYC requirements. Kalshi can ask FCMs to identify the locations of users to figure out which users to block. Because of that possibility, Gordon didn’t believe geofencing constituted irreparable harm.
Moving onto the balance of hardships, Gordon asked whether DraftKings and FanDuel leaving Nevada to pursue CFTC regulation was a significant loss to Nevada. Havemann and Gordon disagreed about whether those companies withdrew their applications because of Nevada’s warnings to sportsbook applicants about sports contracts or whether Kalshi’s sports contracts encouraged those companies to leave.
Havemann returned to the point that states prohibiting contracts that a federal regulator has allowed still gives Kalshi a greater balance of harms.
Robinhood’s new arguments
Kevin Orsini focused on a few new points uncovered by Kalshi’s counsel.
Orsini argued that even though federal judges have the authority to interpret the definition of swaps, states should target the CFTC under the APA. He also argued that the CFTC declining to conduct a public interest review was effectively a final agency action allowing sports contracts to be listed.
Gordon responded that Kalshi told the D.C. Court they could interpret the definition of swaps while asking Gordon not to. Orsini believed the threshold question was whether the state could bring criminal enforcement against a federal exchange offering regulated products. In his view, the pertinent question was not whether or not sports contracts were swaps.
Gordon also challenged the argument that he lacked the jurisdiction to interpret the definition of swaps. Orsini argued that the merits of the case did not require Gordon to decide whether sports contracts are swaps. Instead, the question is whether federal regulation overrules state law.
Orsini invoked the Big Lagoon case, which centered on the Big Lagoon Rancheria tribe’s dispute with California over whether the tribe had a right to build a casino on its lands. The Ninth Circuit ruled that it did, because the Bureau of Indian Affairs had already taken the land into federal trust and authorized the casino. California could not overrule that decision just because the state didn’t like the federal agency’s ruling.
Orsini also argued that even if Gordon ruled that sports contracts weren’t swaps, they would still be excluded commodities. The excluded commodities include “occurrences,” which is a broader category that could protect sports contracts.
Nevada’s argument against sports event contracts
Nicole Saharsky argued that the state is seeking to enforce its state gaming law and asked whether the CEA applies to sports contracts. Counsel argued that the wager itself was the risk instead of the event underlying the contract. She invoked the Crypto.com decision, in which Gordon drew a difference between outcomes and occurrences.
Gordon challenged her on the CFTC’s authority over sports contracts extending to sports wagers on sportsbooks. Saharsky argued that swaps must be on DCMs, so the determination that a contract is a swap must come before arguing about where the contract is listed.
She also invoked DraftKings and FanDuel’s withdrawal from Nevada as a harm that the state would incur. She listed off the state funding that would be lost, and could not think of a case in which a company could “violate state law” and continue growing their business.
When asked how Kalshi would comply with both state and federal law, Saharsky argued that Kalshi could get a sports betting license. She also objected to sports contracts being held on the same level as wheat or pork belly futures, invoking the congressional intent argument against sports contracts.
Saharsky ended by challenging Robinhood’s excluded commodity argument. She argued that classifying a sports contract as an excluded commodity doesn’t protect sports contracts from Nevada’s enforcement.
Once Judge Gordon rules on the matter some time around the Thanksgiving holiday, we’ll know whether Kalshi will be following Crypto.com in geoblocking Nevada customers.
