Managing Editor
This week, Massachusetts handed Kalshi its second significant legal setback, as a federal judge remanded the case to state court, thwarting Kalshi’s attempt to force a favorable change of venue. Central to Kalshi’s battle with Massachusetts and other states is the argument that, as a CFTC-regulated entity, its products are a matter for federal financial laws, not state gambling laws.
Twice now, however, federal courts have ruled that the lawmakers who drafted the Commodity Exchange Act didn’t clearly intend that it should entirely supersede state sports betting laws. That doesn’t mean the courts necessarily agree with the states on the legality of Kalshi’s products. We’re still at an early stage of all these cases, where the standards for clarity and obviousness are high.
Nonetheless, the issue of congressional intent was sufficient to see Kalshi denied a preliminary injunction in Maryland, after having received one in Nevada and New Jersey. And here, it means that Judge Richard G. Stearns didn’t see sufficient cause to deny the state court its right to rule on whether Kalshi’s sports prediction markets qualify as illegal gambling under Massachusetts law.
Turns Out the Best Offense is Actually a Good Offense
Together, these rulings represent an important shift in momentum, while also signaling a larger battle to come. The first half of 2025 was nothing but wins for prediction markets. The CFTC dropped its investigations against Kalshi and its competitors, handing out no-action letters and signing a joint statement with the SEC announcing a commitment to fostering “innovation.”
The general presumption among legal commentators — which has been borne out by events so far — is that federal courts will be more inclined to see things Kalshi’s way than state courts will.
Eight other states have also tried to put an end to sports event contracts. However, the standard approach has been to issue a cease-and-desist to the prediction markets, which has led Kalshi to sue in federal court.
What Massachusetts has done differently is to go on the offensive, suing Kalshi before it sues them, so as to be able to choose the venue. Other states may now follow its example, which is a significant shift in the tone of the battle.
The Trump Years Have Turned States’ Rights on Their Head
An interesting subtext to all this is that it feels like we’re in the Bizarroverse of states’ rights. For one thing, defending states’ self-determination in the face of perceived federal overreach has generally been a Republican issue. Or, at least it has been since the early 20th century, when the two parties did a do-si-do on many issues.
While many in the President’s entourage are ostensibly still in favor of small government, the same can’t be said for Trump himself, who has made it obvious that he would like to see federal power — specifically, executive federal power — be as broad as possible. That puts Trump and the courts in an interesting bind, as he rails against constraints on federal power imposed by courts stacked with judges his own party nominated, following the precedent they’ve set on other issues.
It feels like prediction markets are on course for a Supreme Court case. Any such case is bound to take on a bit of that flavor. It’s also likely to be of similar duration and lasting impact as the one that ended the Professional and Amateur Sports Protection Act (PASPA) and enabled states to legalize sports betting.
That is, of course, the other Bizarroverse element here. The federal government hasn’t quite committed to policies in favor of sports predictions yet. If it comes to that, however, it would be pushing for what is effectively legalized sports betting everywhere, when less than a decade ago it was fighting against states’ ability to legalize it anywhere. And the states fighting against sports event contracts are all among those that have legalized sports betting.
A Fight Over Money
None of this is really about whether Americans should or shouldn’t be able to risk money on the outcome of sports events. The PASPA fight wasn’t, either. It’s a fight over who gets to profit from that.
If moral objections to gambling had anything to do with this, it wouldn’t have been Nevada and New Jersey leading the charge against Kalshi. Texas Republicans, for whom any gambling legislation is supposedly a nonstarter, wouldn’t be sitting idly by while Kalshi runs ads explicitly describing its product as “legal sports betting in Texas.”
For states, the promise of legal sports betting was that it would be a bountiful source of tax revenue. Some states have fared better than others in that regard, but none wants to give up what the industry is now bringing in. Nationally, that now amounts to about $250 million per month, and over $9 billion to date.
Prediction markets, being federally regulated, don’t pay state-level privilege taxes on gambling. So who does profit from their ability to offer sports contracts? Increasingly, it seems like one answer to that question is the President and his family.
With this week’s deal between Truth Social and Crypto.com, the Trump family has a business interest in all three major prediction markets.
According to data on Dune.com, sports contracts now account for 90% of Kalshi’s billion-dollar monthly trading volume. That still comes almost entirely from the U.S., despite Kalshi having opened itself to international traders. On the more internationally-oriented Polymarket, that figure is just 37%. That shows just how much money is at stake when it comes to the now-inevitable battle over whether sports event contracts violate U.S. states’ sports betting laws.
