Managing Editor
Maryland can enforce its cease-and-desist against Kalshi, a federal District Court has ruled, dealing the predictions market its first real legal setback of 2025. Judge Adam Abelson denied the company’s request for a restraining order, although Kalshi immediately appealed to the Fourth Circuit.
Abelson’s decision doesn’t mean Kalshi has lost its case, only that it may need to comply temporarily with Maryland’s orders while awaiting a final ruling. That could mean Maryland users lose access to contract trading on Kalshi for months or years.
Maryland is one of several states to have ordered Kalshi and similar platforms out due to offering contracts on sports outcomes.
Kalshi is a financial trading platform operating under the federal regulation of the Commodity Futures Trading Commission (CFTC). It offers a specific type of financial product called “event contracts.”
The exchange takes a small fee to facilitate the trading of these contracts between third parties. One party will realize the value of the contract if the specified event comes to pass, while the other party will realize that value if it doesn’t.
Traditionally, the purpose of event contracts is to allow investors and business owners to hedge against events that would negatively impact them. Contracts on sports outcomes are doubly controversial. Firstly, because there’s no significant financial event being hedged against. Secondly, because they create a product that resembles sports betting, which falls to states to regulate, not the federal government.
Aside from sports, Kalshi also facilitates “bets” on wide-ranging topics like municipal elections, Middle East policy, and energy research.
Preliminary injunctions are also about predicting the future
Ironically, court decisions on preliminary injunctions have something in common with these event contracts. Both involve speculating about events yet to come.
A court can only issue a preliminary injunction if two conditions are met:
- The court believes that the party requesting the injunction is likely to win the case.
- The court believes that this party will suffer irreparable harm if forced to wait for the case to reach a final verdict.
Until now, Kalshi has done well in obtaining preliminary injunctions against states seeking to drive it out. For instance, it continues to operate in New Jersey and Nevada, despite cease-and-desist orders from those states’ regulators.
The difference in Maryland seems to be that Judge Abelson is considering a different aspect of the case from his peers in other districts.
The fact that Abelson doesn’t see Kalshi as “likely” to win isn’t the same as Kalshi having lost the case. However, it does mean he sees things differently than those he came before, and that Kalshi may have to refine its arguments if it fails to overturn his decision on appeal.
Questions of timing and intent
This is a complex case, but there are two major components. The first is whether sports are a valid topic for financial event contracts. The second is jurisdictional, as sports contracts fall at the intersection of the federal responsibility to regulate financial products and the state responsibility to regulate sports betting.
Some legal experts have opined that Kalshi is likely to prevail if the focus is on the first question. Appellate lawyer Andrew Kim even called it “a trap.”
On the one hand, the consequences of losing on that front would be worse for Kalshi, as it would also rule out a lot more of its contracts than just sports. However, it would require courts to take a very narrow view of what sort of “economic consequence” is worthy of hedging against through event contracts. With a more liberal interpretation, Kim says it is a “really tough sell” for states to argue that no sporting event is associated with economic consequences.
For instance, game results determine host cities for playoff games in many sports, which surely has some economic impact on those cities’ tourism-related industries.
Can you intend to override something that doesn’t exist yet?
Judge Abelson avoided that “trap” by assuming for the sake of argument that the contracts were inherently permissible, in order to focus on the jurisdictional aspects of the case.
His ruling looks at congressional intent, asking whether congressional lawmakers intended for event contract law to supersede state sports betting laws. Given the states’ obvious interest in sports betting as a tax revenue stream, it would require a willful act by congressional lawmakers to override them.
Abelson’s decision raises eight objections to the idea that Congress intended this. One of these is an interesting point about timing.
At the time Congress passed the laws governing event contracts, federal laws prohibited states from legalizing sports betting at all—except for Nevada, which had been grandfathered in. That, Abelson says, suggests a lack of intent. Could lawmakers have intended to supersede something that wasn’t possible in the first place at the time they were writing the law?
When Congress enacted and amended the CEA, it was highly unlikely to have intended to override state laws that regulate sports betting such as Maryland’s gaming laws, because at those times it was already largely illegal federally to engage in sports gambling (under either the Wire Act in 1974 or PASPA in 2010).
