The count is up to six state gambling regulators that have sent cease-and-desist letters to Kalshi, demanding they stop offering sports event contracts in their states. Some of those states have also included Robinhood and Crypto.com in their list of undesirables.
On Monday, Maryland’s Lottery and Gaming Control Commission joined the growing list, setting Kalshi in its sights. The state fleet also includes Nevada, New Jersey, Ohio, Illinois, and Montana, which Dustin Gouker reported in his April 7 Event Horizon substack, was actually the second state (after Nevada) to send a similar cease and desist – on March 26.
Kalshi has responded by suing Nevada and New Jersey, asserting that Kalshi’s CFTC-regulated contracts are legal in all 50 states. In its case against the Nevada Gaming Control Board, Kalshi argued:
“The Board’s attempt to regulate trading on a federally regulated exchange is preempted by federal law. As the CFTC informed the U.S. Court of Appeals for the D.C. Circuit just a few months ago, ‘due to federal preemption, event contracts never violate state law when they are traded on a [designated contract market]’ like Kalshi.”
Some in the sports betting industry, like gambling lawyer Daniel Wallach, expect New York to file a case against Kalshi too. New York is home to the country’s largest sports betting market, but depending how the courts resolve the preemption issue, even a dozen additional lawsuits may not make a difference.
Crypto.com and Kalshi approached sports differently
On the weekend before Christmas 2024, another CFTC-regulated prediction market platform, Crypto.com, self-certified event contracts on the Super Bowl. When the CFTC ordered Crypto.com to take them down in January 2025, Crypto.com refused.
Kalshi didn’t launch its Super Bowl contracts until after Trump took office, and while the CFTC requested additional information from Kalshi proving its contracts complied with the agency’s regulations, the CFTC allowed Kalshi to keep its Super Bowl contracts live.
The cease-and-desist letters began in March after Kalshi partnered with Robinhood to bring March Madness contracts to both companies’ traders. Nevada was the first to send letters to Kalshi, Robinhood, and Crypto.com ordering them to pull their sports contracts out of Nevada. Montana, New Jersey, Ohio, Illinois, and now Maryland have followed suit.
Will Kalshi’s federal preemption argument hold up?
As is common in federal preemption cases, the courts will decide whether trading on sports is a right allocated to states or whether the CFTC can regulate sports event contracts.
Kalshi appears confident that it can win after its legal victory against the federal government to offer election contracts during the 2024 election. In a recent TechCrunch interview, Kalshi co-founder Tarek Mansour emphasized the company’s belief that they are on the right side of the law, as confirmed by their court victory against the CFTC.
“We are actually, squarely, unequivocally right on the law. And that’s always been our principle. If we believe, and read the law, and we are right on the law, then we will do it, because we follow the law.”
Kalshi has already demonstrated a willingness to sue its regulator to clarify their right to expand the topics event contracts can cover. Even so, regulatory compliance remains at the core of Kalshi’s strategy to grow and scale.
Expect Kalshi to fight the sports lawsuits with all their legal might until a final decision comes down on the right to regulate, or outlaw, sports event contracts.
