On Wednesday, a federal court allowed Kalshi to continue offering its sports and election contracts in Nevada over the state’s gambling regulator’s objections.
Nevada had issued a cease-and-desist letter to Kalshi over the prediction market platform’s sports and election contracts. The letter ordered Kalshi to pull its sports and contracts from Nevada’s market. Kalshi objected, arguing that as a federally-regulated derivatives exchange, only the CFTC can prohibit its contracts.
Kalshi asked for a temporary restraining order and a preliminary injunction against the Nevada Gaming Control Board. The federal court granted in part the preliminary injunction, allowing Kalshi to operate in Nevada while the case plays out in federal court.
“We are grateful for the court’s careful attention to this matter and recognition of Kalshi’s status as a CFTC-regulated exchange,” Kalshi co-founder and CEO Tarek Mansour wrote on X.
Kalshi’s victory in Nevada buys time for the courts to rule on a larger question: whether the CFTC can preempt state gambling law to offer event contracts on games.
Can the CFTC refrain from a public interest review?
Nevada is only one of six states – so far – that have filed cease-and-desist letters against Kalshi. The legal battles against Kalshi’s sports contracts won’t end until the courts decide whether the CFTC can regulate event contracts on sports at all.
CFTC Regulation 40.11 prohibits event contracts that “reference terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law, or that involves, relates to, or references an activity that is similar to any of those activities and that the CFTC determines by rule or regulation to be contrary to the public interest.”
The CFTC has not conducted a public interest review of Kalshi’s sports contracts. Under Chairman nominee Brian Quintenz, that will likely be the argument the CFTC leans on to argue that Kalshi’s contracts on sports are legal even if they can reasonably be called “gaming.”
Arguments for election contracts have shifted since sports
When Kalshi and the CFTC commissioners who supported election contracts defended them, they pointed out that elections are neither games nor illegal activities. The District Court concurred with those arguments, and the Circuit Court of Appeals upheld the District Court’s ruling.
However, sports are games, so the old arguments that Kalshi’s event contracts are not games no longer apply. Kalshi is now wrapping itself in the CFTC’s sole authority to regulate event contracts.
The shift in legal arguments is part of the shifting boundaries between traditional event contracts on financial indicators and Kalshi’s stated goal of being able to trade the news.
