Nevada filed a motion to dismiss Kalshi’s lawsuit against the state’s gaming regulators on Wednesday.
Nevada argued that even though Kalshi is federally regulated, states have a say in deciding what constitutes gambling. The motion pointed to different federal laws that show states have a role to play in drawing the line between gambling and speculation.
…the passage of other federal laws—Wire Act, Indian Gaming Regulatory Act, and Professional and Amateur Sports Protection Act—show that Congress did not intend for the CEA to preempt state gaming laws.
Nevada is one of over half a dozen states that have sent CFTC-regulated prediction market platform Kalshi a cease-and-desist letter over its sports contracts. Kalshi argues that the different lines states could draw between event contracts and gambling are why Congress gave the Commodity Futures Trading Commission (CFTC) the exclusive right to regulate prediction markets.
Nevada’s new argument
Nevada was the first state to send Kalshi a cease-and-desist letter over its sports and election contracts. It was also the first state where Kalshi received a preliminary injunction, which allowed the case to play out without Kalshi being penalized.
Nevada’s new argument that Congress intended for states to be considered comes from New Jersey, the second state to send Kalshi a cease-and-desist letter. New Jersey argued that the CFTC’s reliance on state definitions of gaming showed that states have a role to play in deciding what constitutes gaming.
It was a stronger argument than Nevada’s first brief, which posited that Kalshi needed a sports betting license to offer its event contracts. That argument would have put Kalshi at the mercy of the state gaming regulator instead of its federal finance regulator.
Do states actually have a say in event contracts?
State law may have been considered in the CFTC’s definition of “gaming,” and states may have traditionally regulated gambling. But if the CFTC allows sports contracts to remain live, then there may be little the states can do about it.
Goodwin Law Partner Andrew Kim has argued that Kalshi’s cases against hostile states comes down to “whether *both* the CFTC and state gaming regulators may regulate ‘contracts involving gaming,’ or whether the CFTC rides solo.”
The CFTC may choose to allow sports contracts despite Rule 40.11 prohibiting event contracts involving gaming. But as Kim points out, it may be the CFTC’s decision to make alone. This could potentially set up a pivot from states suing Kalshi to suing its regulator, but only time will tell.
