The Maryland District Court denied Kalshi’s request for a preliminary injunction on Friday, marking the commercial prediction market’s first loss in its sports contract cases.
Maryland sent Kalshi Crypto.com, and Robinhood cease-and-desist letters ordering them to stop offering event contracts on sports, claiming they were too similar to sports betting. Kalshi sued Maryland back, arguing that as a federally regulated financial exchange, only Congress and the CFTC had the authority to limit its sports contracts.
Maryland District Judge Adam Abelson rejected Kalshi’s argument that Congress had completely preempted the field of derivatives trading by pointing out that one of the enumerated categories in the Commodities Exchange Act (CEA) is activities that consider state law. Abelson wrote in the Opinion:
“…As discussed above, Congress expressly authorized the Commission to disallow event contracts that ‘involve . . . activity that is unlawful under . . . State law.’…That plain text clearly reflects an affirmative intent to preserve state laws governing whether particular conduct is lawful or unlawful. The fact that Congress expressly authorized the Commission to prohibit particular categories of transactions as contrary to the public interest based on the fact that the conduct at issue would violate state law severely undercuts Kalshi’s suggestion that Congress intended to displace all state laws that would otherwise apply to transactions that fall within the scope of the CEA.”
The news of the opinion was first reported by Daniel Wallach via LinkedIn and Dustin Gouker on Substack.
Kalshi appeals the ruling (Aug. 2 Update)
Kalshi has appealed the decision on the same day, Aug. 1, per Wallach on LI.
“Kalshi has appealed Judge Abelson’s ruling to the Fourth Circuit and simultaneously filed a motion for an immediate injunction pending appeal with the Maryland judge requesting that he rule on the motion by August 5th as a prerequisite for seeking the same relief from the CA4.”
Kalshi’s lawyers explain the need for expedition in the filed motion:
“Given the risk that Kalshi will be subject to criminal liability absent relief, Kalshi respectfully requests a ruling on its motion for an injunction pending appeal by August 5, 2025, after which Kalshi intends to seek relief from the U.S. Court of Appeals for the Fourth Circuit.”
They also go into the impossibility to immediately employ geofencing which would “take months and cost tens of millions of dollars,” as well as “expose Kalshi to liability for violating its contractual obligations to users and undermining those users’ own rights; imperil its reputation; and imperil compliance with the CFTC’s Core Principle that demands ‘impartial access’ to Kalshi’s exchange for all users.”
This is a point that previous judges brought up in rulings in favor of preliminary injunction for Kalshi in Nevada and New Jersey.
Kalshi also points out it could not obtain a license to operate in Maryland as the judge’s ruling suggests because “Maryland law requires licensees to accept wagers exclusively from users within the state—a requirement that would be impossible for a nationwide exchange like Kalshi to satisfy.”
“Kalshi would thus be faced with an untenable choice: It would either have to cease offering its sports-event contracts exclusively in Maryland while leaving them in place elsewhere, running afoul of the impartial-access requirements imposed on Kalshi by federal law, or else it would have to cease offering its sports event contracts nationwide, which would be especially problematic given that Kalshi has obtained preliminary injunctions in two states permitting it to offer these very same contracts.”
Maryland’s ruling against Kalshi: Case implications
Judge Abelson considered Kalshi’s sports contracts “gaming.” He writes at the end of his opinion:
“It is Kalshi’s desire not to comply with Maryland law and presumably incur some additional compliance costs—not the existence of Maryland consumer protection laws themselves—that creates the situation Kalshi professes to worry about. So long as Kalshi obtains a license and complies with Maryland sports gambling laws, those laws would not pose an obstacle to Kalshi making the sports gambling portion of its platform available to users in Maryland.”
Kalshi’s being denied a preliminary injunction could embolden other state gaming regulators to send cease-and-desist letters to Kalshi and other prediction market platforms offering sports contracts.
The Maryland District case also marks a beginning of the clarification of gaming’s definition in federal law. Congress could legislate to allow sports contracts, but the courts are more likely to settle the issue through lawsuits against platforms that try to offer them.
New Jersey Third Circuit opinion timeline
While the prediction market industry’s most crucial district court case is over, the Third Circuit Court of Appeals is the first appellate case where the question of sports contracts could be resolved.
New Jersey was the second state that Kalshi sued over a cease-and-desist letter. Kalshi won that case by having their request for preliminary injunction granted. New Jersey appealed, and that case is now being heard in the Third Circuit.
With Maryland ruling that state law is relevant in determining which events are fair game for regulated prediction markets to offer, the Third Circuit now has precedent to draw on in New Jersey’s appeal against Kalshi’s right to continue offering sports event contracts in the Garden State.
While Maryland is not the final word in the fight over sports contracts, it raises the possibility that the line between gaming and speculative investing will be drawn in court rather than in Congress or at the CFTC.
