Judge Andrew Gordon wrote his opinion explaining Tuesday’s decision to grant Kalshi’s temporary restraining order and preliminary injunction. Gordon argued that because Kalshi is federally-regulated by the CFTC, states cannot enforce their gaming laws against Kalshi.
“Because the CFTC has approved (or at least not yet disapproved) Kalshi’s sports-related contracts, the defendants cannot pursue civil or criminal liability against Kalshi for offering those contracts,” Gordon wrote.
Gordon also pointed out in his order that the litigation against Kalshi allowed the exchange to offer its election contracts under the CFTC’s supervision.
“And because (1) the district court in KalshiEX LLC found in Kalshi’s favor, (2) the D.C. Circuit denied the CFTC’s request for a stay pending appeal, and (3) the D.C. Circuit has not overturned the district court’s decision as of this date, Kalshi’s election-based contracts are also currently legal under federal law.”
While Tuesday’s rulings and Wednesday’s written opinion are early victories for Kalshi, there are two possible ways some of its contracts could be pulled from all 50 states. The D.C. Circuit could overturn the District Court’s opinion allowing Kalshi’s election contracts, or the CFTC could find its sports contracts contrary to the public interest.
Nevada unintentionally made the case for federal preemption
One of Gordon’s final reasons for ruling in Kalshi’s favor was the exchange’s claim to irreparable harm if it complied with Nevada’s cease-and-desist letter. Nevada set a deadline for Kalshi to comply (by pulling its sports and election markets from Nevada), which Kalshi could not meet before the hearing. Gordon wrote:
“Kalshi thus faces a “Hobson’s choice”: if it does not comply with the defendants’ demand to cease it faces civil and criminal liability, but if it does comply it will incur substantial economic and reputational harm as well as the potential existential threat of the CFTC taking action against it for violating the CFTC’s Core Principles if Kalshi disrupts contracts or geographically limits who can enter contracts on what is supposed to be a national exchange.”
DCM Core Principle 4 states that “The board of trade shall have the capacity and responsibility to prevent manipulation, price distortion, and disruptions of the delivery or cash-settlement process…”
Pulling out of Nevada would disrupt the cash-settlement process for traders who had already taken positions in Kalshi’s markets. Consequently, Gordon pointed out that the numerous cease-and-desist letters from other states “[highlight] the problem of allowing the States to regulate a national exchange…Preventing the difficulties that would create is the reason Congress granted the CFTC exclusive jurisdiction over CFTC-designated exchanges.”
Real threats to Kalshi come from federal authorities
While Kalshi doesn’t seem to face threats from state regulators, the D.C. Circuit opinion (on the CFTC’s appeal) still hasn’t been released on Kalshi’s election contracts. The company held oral arguments against the CFTC defending its election contracts on Jan. 17, 2025.
An opinion overturning the District Court’s ruling would endanger Kalshi’s election contracts.
The CFTC could also choose to conduct a public interest review of Kalshi’s sports contracts and prohibit them — if they were to determine the contracts were contrary to the public interest.
Both outcomes seem unlikely, but Nevada’s case highlights where the threats to Kalshi’s contracts really come from. Kalshi’s legal battles may have a supportive regulator under Brian Quintenz and even under acting Chair Caroline Pham, but the next administration may not be so amenable to sports or election contracts.
However unlikely it is to happen, Congress could prohibit those contracts on federal prediction markets too. Gordon ends his opinion by stating:
“To the extent the States or other interested parties object to Kalshi offering sports and election event contracts, they must take that up with the CFTC and Congress. Such policy issues are beyond the jurisdiction of this court.”
