Kalshi, a federally regulated financial exchange platform that allows users to trade on real-world events, has found itself at the centre of a legal battle with gaming regulators in Nevada and New Jersey. Both states have issued cease-and-desist orders targeting Kalshi’s sports event contracts, sparking a debate over the boundaries of federal and state regulatory authority.
The Nevada Gaming Control Board (NGCB) kicked off the controversy in early March by demanding that Kalshi stop offering sports event contracts in the state by 14 March. Shortly after, the New Jersey Division of Gaming Enforcement (DGE) followed suit, issuing a similar order to both Kalshi and Robinhood on 27 March. While Robinhood complied with the directive, Kalshi has chosen to challenge the orders in court, claiming that the states are overstepping their jurisdiction.
Nevada lawsuit alleges violation of federal law
Kalshi’s legal argument against Nevada centres around the Commodity Exchange Act (CEA), which grants exclusive regulatory authority over futures trading to the Commodity Futures Trading Commission (CFTC). As a federally regulated derivatives exchange, Kalshi argues that state-level intervention undermines the clear intent of Congress to centralise oversight under federal law.
“The Commodity Exchange Act explicitly and unambiguously delegates the ‘exclusive’ power to oversee, approve, and regulate futures trading on registered exchanges to a federal agency, the CFTC,” Kalshi stated in its lawsuit against Nevada.
The company further contends that allowing individual states to impose restrictions would create a fragmented regulatory landscape, precisely what federal legislation sought to avoid. Gurbir S. Grewal of Milbank LLP, representing Kalshi, emphasised this point in the lawsuit against New Jersey: “Kalshi is a federally-designated and approved derivatives exchange, subject to the CFTC’s exclusive jurisdiction. It offers consumers the chance to invest in many types of event contracts, including, as relevant here, sports-outcome contracts.”
Grewal also noted that these contracts are lawful under federal law and have been subject to rigorous oversight by the CFTC. “Two months ago, the CFTC allowed Kalshi’s sports-outcome contracts to take effect without review,” he added.
New Jersey constitution complicates matters
In addition to federal regulatory concerns, New Jersey has accused both Kalshi and Robinhood of violating its constitution by offering event trading on college sports, a practice explicitly prohibited under state law. The prohibition extends to any betting on college sports events held within New Jersey or involving New Jersey-based teams.
Kalshi’s Co-Founder and CEO Tarek Mansour has publicly defended his company’s position, taking to social media to criticise what he sees as a fundamental misunderstanding of prediction markets by state regulators. “While they are not our regulators, both states have issued cease-and-desist orders that fundamentally misunderstand prediction markets and undermine the foundation of U.S. financial markets, which are regulated by the federal government,” Mansour wrote.
He also expressed frustration with efforts to educate state officials about prediction markets and their federal oversight: “We have made every effort to engage proactively with both Nevada and New Jersey and try to educate them about prediction markets, how they are regulated, and how critical they are… but our words fell on deaf ears.”
While Mansour’s defence highlights the importance of prediction markets as federally regulated financial tools, it also underscores the tension between state-specific laws and broader federal regulations, a conflict that is unlikely to be resolved easily.
The broader implications of Kalshi’s legal battle
Kalshi’s lawsuits against Nevada and New Jersey raise important questions about how prediction markets should be regulated in the United States. While federal agencies like the CFTC provide overarching oversight for platforms like Kalshi, state governments retain significant authority within their borders, especially when it comes to gambling laws.
This legal clash illustrates the complexities of navigating dual regulatory frameworks in industries like financial exchanges and gaming. As federal betting laws evolve, states continue to assert their rights to enforce local restrictions on activities like college sports betting, a stance firmly rooted in their constitutions.
For now, Kalshi remains committed to defending its operations through legal channels while continuing its efforts to educate regulators about its role in financial markets.
