A federal judge in Connecticut has denied Kalshi’s request for a preliminary injunction, marking another setback for the prediction market operator in its ongoing dispute with state regulators over sports-related event contracts.
The ruling, issued by U.S. District Court Judge Vernon D. Oliver, allows Connecticut authorities to move forward with potential enforcement of state gambling laws against Kalshi. While the decision does not immediately trigger regulatory action, it removes a legal barrier that had temporarily prevented the state from acting against the company.
The dispute centers on whether Kalshi’s sports event contracts fall under federal commodities law and therefore remain under the exclusive authority of the Commodity Futures Trading Commission (CFTC), or whether states retain the power to regulate them as gambling products.
Judge Oliver concluded that Kalshi had not demonstrated a likelihood of success on the central legal questions presented in the case.
Court Rejects Kalshi’s Federal Law Arguments
A major issue before the court was whether Kalshi’s sports-related contracts qualify as “swaps” under the Commodity Exchange Act (CEA). Kalshi has consistently argued that its event contracts operate within a federally regulated framework and should therefore be shielded from state gambling regulations. Oliver disagreed.
“Kalshi’s sports-event contracts fail to satisfy this portion of the statutory definition of a swap because they do not depend on whether an underlying sporting event occurs, fails to occur, or occurs to a particular extent. Instead, Kalshi’s sports-event contracts depend on the event’s outcomes or discrete in-game occurrences. Treating those outcomes as separate ‘events’ would depart from the ordinary meaning of the term. Thus, Kalshi’s sports-event contracts do not fall within § 1a(47)(A)(ii),” Oliver wrote in his decision, according to Sports Betting Dime.
The judge further determined that even if the contracts were considered swaps, Connecticut’s gambling laws would not automatically be overridden by federal law.
“Kalshi characterizes its sports-related event contracts in various ways, but at bottom, they are sports wagers,” wrote Oliver.
In his conclusion, the judge stated: “The Court declines to conclude either that these sports wagers are properly categorized as swaps and fall under the CFTC’s authority, or that Congress clearly displaced Connecticut’s traditional authority to regulate sports wagering and vested that authority in the CFTC, an agency that has not historically regulated sports wagering and has not exercised meaningful oversight over Kalshi’s sports event contracts.”
Oliver also emphasized that sports wagering has historically been regulated by states rather than federal commodities regulators. The decision noted that Kalshi itself has publicly promoted its platform as offering legal sports betting across the United States, a characterization that supported the court’s view that the products resemble gambling activity traditionally overseen by state authorities.
Lawsuit Stemmed From State Cease-and-Desist Orders
The legal battle began in December after the Connecticut Department of Consumer Protection’s Gaming Division issued cease-and-desist notices to Kalshi, Robinhood and Crypto.com. State regulators alleged that the companies were offering sports wagering products without the licenses required under Connecticut law.
The notices also raised concerns about compliance with state gambling rules, including restrictions involving the minimum legal gambling age and prohibitions on wagering involving Connecticut college teams.
Kalshi responded by filing suit against the Connecticut Department of Consumer Protection and its director, Kristofer Gilman. The company sought both preliminary and permanent injunctions to prevent the state from enforcing its position.
According to the lawsuit, Connecticut was attempting to interfere with a federally regulated exchange. The filing also argued that the company’s sports contracts are lawful under federal law and subject to oversight by the CFTC.
“It offers consumers the chance to invest in many types of event contracts, including, as relevant here, sports-outcome contracts. These contracts are subject to extensive oversight by the CFTC, and—critically—they are lawful under federal law. Earlier this year, the CFTC allowed Kalshi’s sports-outcome contracts to take effect without review,” counsel noted in the lawsuit.
Growing List of Court Defeats
Before issuing the latest decision, Oliver had temporarily prevented Connecticut from enforcing its cease-and-desist order while the court considered Kalshi’s injunction request. Following oral arguments held earlier this year, the judge ultimately found that the company had failed to establish that it was likely to prevail.
“Here, the merits of the case center on whether (1) Kalshi’s sports-event contracts constitute ‘swaps’ within the meaning of the CEA, and, if so, (2) whether Connecticut gambling laws are preempted by federal law as applied to Kalshi’s sports-event contracts,” he wrote. “Kalshi has not demonstrated that it is likely to succeed on the merits on either of these issues.”
The ruling adds Connecticut to a series of recent legal setbacks for Kalshi. Courts in Michigan, Nevada, New York, Utah, Washington, Wisconsin and other jurisdictions have recently issued decisions unfavorable to the company’s efforts to block state regulators.
Oliver also referenced broader concerns about the implications of Kalshi’s interpretation of federal law. He questioned why the company could not simply seek a Connecticut gaming license and noted that state and federal regulatory systems could operate alongside one another.
The judge further observed that Kalshi had acknowledged challenges in distinguishing certain casino-style contracts from gambling activity, concluding that the company had offered “no principled reason” why some sports-related contracts should be treated differently.
Following the ruling, a Kalshi spokesperson indicated that the company is reviewing its next steps. “We respectfully disagree with the Court’s decision and are considering all legal options.”
The decision comes as scrutiny of prediction markets continues to increase nationwide. Separately, the CFTC recently reminded regulated prediction market operators that they are prohibited from using American-style betting odds, a measure intended to further distinguish prediction market products from traditional sportsbooks.