The judge overseeing Kalshi’s case against Nevada dissolved Kalshi’s preliminary injunction on Tuesday.
In April, Judge Gordon ruled that Kalshi’s sports contracts were likely immune from state regulation because the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction over event contracts. Then, just two days before Thanksgiving, Gordon reversed course, ruling that event contracts on sports are not swaps and therefore do not fall under the CFTC’s jurisdiction.
He also pointed to the CFTC’s own guidance before the government shutdown warning licensees to set money aside to “unwind” sports contracts if they lost court battles against state gaming commissions.
“The CFTC has recently directed DCMs like Kalshi and FCMs like Robinhood to warn customers about the various lawsuits and risks they pose,” Gordon wrote. “As a result, Kalshi’s customers are on notice that offering gaming contracts implicates the CFTC’s regulation, that the legal landscape under which Kalshi is operating could change, and that customers’ contracts could be disrupted. If customers continue trading in Kalshi’s products, they, like Kalshi, are proceeding at their own risk. Kalshi could have proceeded cautiously until this and other lawsuits played out, but instead it greatly expanded its offerings, so it has to some extent created or amplified its own harm.”
Long slog towards delisting sports event contracts
It will be some months before sports contracts actually go anywhere. Kalshi will appeal to the Ninth Circuit and could receive a stay pending appeal. However, failing to secure a stay could allow Nevada to enforce geofencing restrictions immediately, which could further lead to a cascade of enforcement from other states like Massachusetts.
Kalshi also faces the Third Circuit hearing from its victory in New Jersey and a Fourth Circuit hearing from its loss in Maryland. These rulings will be far more consequential and could set the stage for a Supreme Court battle later down the road.
Meanwhile, Kalshi has continued expanding its offerings. It self-certified parlays for political and economic contracts on Tuesday. Last week, Kalshi also began offering contracts on collectibles like Labubu’s, setting the stage for the prediction market platform to facilitate trading on future fads.
Upcoming prediction market battles
Next month, Kalshi will face off with the Massachusetts attorney general’s office in state court to argue that it is not violating the state’s gaming laws. However, the most important cases are the decisions from the Third and Fourth Circuits.
The appellate decisions will overrule District Court rulings and could provide better clarity about the legality of sports contracts. These cases could also clarify whether it is up to courts or Congress to determine if the CFTC has complete authority over event contracts or whether state gaming commissions can weigh in. The question of whether sports contracts are swaps could also receive a more definitive answer.
Finally, the appellate cases will reveal whether the legal reasoning that led to state or prediction market victories can withstand scrutiny. Holes in legal reasoning could reverse what were once victories in District Court.
While Judge Gordon’s reversal on Kalshi’s sports contracts is interesting, it is far from the final or most authoritative word coming down over the course of the next few months.
