A U.S. federal court in Connecticut has denied prediction market operator Kalshi’s request to block state officials from enforcing gambling laws against its sports event contracts, dealing a setback to the company’s efforts to establish federal oversight of its offerings.
U.S. District Judge Vernon D. Oliver ruled that Kalshi’s sports event contracts do not qualify as “swaps” under the Commodity Exchange Act (CEA), rejecting a key argument the company has used to challenge state regulation.
“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,” Oliver wrote. “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, Oliver added.
The ruling allows Connecticut officials to pursue enforcement of state gambling laws against Kalshi, although it does not itself order any enforcement action.
Oliver also ruled that even if Kalshi’s sports contracts were considered swaps, Connecticut’s gambling laws would not be preempted by the CEA.
“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,” Oliver wrote.
The judge noted that Kalshi has promoted its platform as offering “legal sports betting nationwide” and said sports wagering has traditionally been subject to state oversight.
“Sports wagering has long been subject to state regulation pursuant to the states’ police powers because of the significant public interests and risks associated with gambling,” Oliver wrote.
Oliver also found that Kalshi had not demonstrated that it was likely to succeed on the merits of its arguments that its sports event contracts qualify as swaps or that Connecticut’s gambling laws are preempted by federal law.
Connecticut’s Department of Consumer Protection previously issued cease-and-desist notices to Kalshi, Robinhood and Crypto.com over sports event contracts, alleging the platforms were offering sports wagers without state licenses.
Kalshi subsequently sued the Connecticut Department of Consumer Protection and its director, Kristofer Gilman, seeking preliminary and permanent injunctions.
In its lawsuit, Kalshi argued that Connecticut’s actions conflicted with the federal regulatory framework governing derivatives. “These contracts are subject to extensive oversight by the CFTC, and—critically—they are lawful under federal law,” its counsel wrote.
A Kalshi spokesperson said the company disagreed with the ruling and was considering its next steps. “We respectfully disagree with the Court’s decision and are considering all legal options.”
The Connecticut ruling adds to a series of recent legal challenges facing prediction market operators, with courts in Wisconsin, Utah and New York also denying requests by Kalshi for injunctions against state regulators.