In essence, a federal judge in Las Vegas has declared that Kalshi's "sports-event" contracts are unlawful gambling rather than federally authorized financial transactions.

The fundamental tenet of Kalshi's and comparable platforms' business models—that federal oversight automatically protects them from state gambling laws—is undermined by US District Judge Andrew Gordon's decision. The decision may have far-reaching effects outside of Nevada because Kalshi has made the same claim in many court cases against state regulators around the United States.

The revelation caused shares of US-regulated sports betting sites to increase, with DraftKings' stock rising 7.7%.

An event contract: what is it?

Because Kalshi's product, event contracts, is a kind of derivative, it is subject to CFTC regulation. By staking money on a "yes" or "no" scenario before to expiration, these contracts enable users to speculate on the result of a particular occurrence.

Judge Gordon dismissed Kalshi's argument that contracts on sporting events fall within the Commodity Exchange Act's (CEA) definition of "swaps," placing them under the CFTC's authority and superseding state gaming laws.

According to the judge, such view is "strained" and would essentially turn all sports betting into federally regulated derivatives trading, upending decades of state-level legal gambling frameworks.

"Kalshi’s interpretation would require all sports betting across the country to come within the jurisdiction of the CFTC,” rather than state and tribal gaming regulators, wrote the judge. “That interpretation upsets decades of federalism regarding gaming regulation, is contrary to Congress’ intent … and cannot be sustained.”

More succinctly, "Until some brilliant people at Kalshi [did], nobody thought sports bets were commodities or excluded commodities or swaps."

The Shield of Kalshi Cracks

The issue started when Nevada accused Kalshi of breaking state gaming rules and threatened to seek civil or criminal sanctions in a cease-and-desist letter received in March. In response, the business filed a lawsuit against Nevada, and Gordon granted a temporary injunction preventing the state from acting.

The preliminary injunction that Gordon had issued earlier this year to shield Kalshi from Nevada authorities' enforcement was revoked. They can now take action against the prediction platform as the injunction has been lifted.

When a federal court permitted Kalshi to offer contracts for political events before to the presidential election in October 2024, everything appeared to be going well for the corporation. This suggested that at least some prediction markets could be treated as legal derivatives by federal courts. All of a sudden, Kalshi feels much more unsteady.