Kalshi’s claim to be a commodities trader is being rejected by courts
Kalshi is weathering multiple state court losses in its battle to remain regulated by the federal government as a trading, not betting, platform.
State courts have struck another blow against online prediction market Kalshi, which has sought to remain outside of gaming law, claiming it's a trading — not gambling — platform.
On Wednesday, a US District judge granted a preliminary injunction to California tribes, prohibiting Kalshi from offering sports contracts (AKA trades or "swaps") on tribal land. The ruling was handed down to the Blue Lake Rancheria and Chicken Ranch Rancheria of Me-Wuk Indians, which jointly sued Kalshi for allegedly violating the Indian Gaming Regulatory Act.
In that case, a panel of judges ruled that Kalshi's sports prediction trading constituted Class III gaming, which covers sports betting and parimutuel (pool) wagering. The court determined that regulations issued by the Commodity Futures Trading Commission (CFTC), which currently governs Kalshi, didn't preempt the Indian Gaming Regulatory Act.
That same day, Arkansas Attorney General Tim Griffin announced the state was suing the platform under the Deceptive Trade Practices Act for alleged illegal gambling operations.
"Kalshi is not blind that its platform presents real, tangible risks to its users, including excessive wagering, financial losses, depression, and other mental health harms," wrote Griffin in a press release. "It doesn’t take a genius to understand that wagering money on whether the Razorbacks win or lose is gambling. And gambling on an unregulated platform is squarely prohibited by Arkansas law."
Late last month, the state of Utah filed criminal charges against Kalshi and its two co-founders, Tarek Mansour and Luana Lopes Lara, accusing the company of violating state gambling prohibitions. The criminal case, which includes counts of unlawful activity, online gambling promotion, and general gambling promotion, followed a civil filing attempting to block Kalshi from advertising trades to Utah residents.
In September, a 6th US Circuit Court of Appeals panel ruled that Ohio and Tennessee could apply state gambling laws to Kalshi contracts. Similar to the California case, the panel determined the Commodities Exchange Act did not override state law. A month prior, Nevada was granted the right to ban the platform outright by a 9th Circuit panel.
The state of New York has also sued the platform for "unlicensed gambling." Both New York and Arkansas claim Kalshi violates state gambling age requirements, as well, allowing individuals as young as 18 to trade on the platform.
Kalshi, echoing competitors like Polymarket, has asserted that the platform's "swaps" are not bets and that it acts as a "designated contract market" trading in futures contracts and derivatives. The platform has sued states for attempting to regulate its operations.
States have pushed back on that framing and argue that online prediction markets, which let users risk money on outcomes outside traditional derivatives, are using the shield of federal oversight to skirt gaming laws that impose various bans, licenses, and taxes on online betting. Some cases have invoked Kalshi's own marketing language, including claims that the platform calls itself a betting site.
Kalshi's lawyers argue that the lack of traditional odds makes the platform's operation significantly different from gambling. Still, state courts have begun striking down Kalshi's claims, including a 2nd Circuit Court decision on Tuesday that denied the company's request for a preliminary injunction in New York and Connecticut cases.
Kalshi — advised by Donald Trump Jr. — has garnered the support of the federal government. As states continue to crack down on the prediction industry, federal agencies like the CFTC have filed a string of countersuits trying to bring states to heel.
