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Kalshi, a US prediction market operator, faces 19 federal lawsuits filed across multiple jurisdictions and at various stages of litigation.
The cases share a common theme: State regulators and some tribal interests allege the operator is offering sports wagering without the licenses required of sportsbooks. Kalshi says it operates under federal commodities law as a regulated derivatives exchange, overseen by the Commodity Futures Trading Commission.
Much of Kalshi’s platform centers on sports, a focus that has put the product in direct conflict with state rules that tightly regulate sports betting.
Federal law vs. state gambling rules
The lawsuits revolve around more than business models — they hinge on how federal law treats certain event-based contracts. A key question is whether sports-based contracts fall under the prohibited “gaming” category in the federal framework governing commodity derivatives. That legal definition has become central in nearly every court argument
Kalshi maintains that its contracts fall under federal oversight, making state gambling laws inapplicable. Opponents argue the contracts function like sports bets in practice and that states have authority to regulate gambling offered to residents within their borders.
The 19 cases reflect several types of legal attacks. State regulators and tribal entities have sued, claiming Kalshi operates an unlicensed sports betting product. Kalshi has filed lawsuits seeking federal court orders to block states from enforcing gambling rules against it.
In another set of cases, individual plaintiffs claim the product worsens problem gambling and should be treated as illegal betting. While the complaints raise different legal theories, they converge on the same question: Do states have the authority to regulate these markets as they do sportsbooks?
Regulators move fast, operators lawyer up
States have not limited themselves to court filings. In early December, Connecticut’s Department of Consumer Protection issued cease-and-desist orders targeting Kalshi and other firms, accusing them of conducting unlicensed online gambling tied to “sports event contracts.” The agency ordered the firms to stop offering the products to Connecticut residents and to allow customers to withdraw funds from their platforms.
Connecticut’s action demonstrates how quickly state regulators can move once they determine prediction contracts resemble sports wagering. It also signals potential actions in other states as litigation continues.
The legal battle is no longer limited to Kalshi. Coinbase has filed lawsuits in Connecticut, Illinois, and Michigan, challenging state efforts to treat prediction markets as gambling. The company contends the CFTC should have jurisdiction.
Coinbase’s entry adds weight to the dispute and raises the likelihood that courts will see multiple versions of the same argument across states, a development that could either accelerate regulatory clarity or deepen confusion.
CFTC signals a more assertive role
CFTC Chair Michael Selig said the agency would reassess its participation in matters already pending in federal courts and emphasized its responsibility to defend its “exclusive jurisdiction” when challenged.
Even modest changes in federal involvement can influence litigation strategy. A more active federal stance could strengthen arguments that states are overreaching, while a lighter approach could leave companies to fend off state enforcement on their own.
What happens next for prediction markets
The next major turning point will likely come from federal appeals courts, where rulings carry broader weight than trial-court orders. If appellate courts reach different conclusions in different regions, the Supreme Court could be asked to intervene.
Congress also remains an option. Lawmakers could clarify rules that were not designed for app-based prediction markets.
For now, operators continue to expand and attract attention, while regulators pursue cases that could narrow the line between what remains legal and what becomes illegal. Ultimately, courts will decide the fundamental question: Do sports-based event contracts classify as gaming activities or as financial contracts?
