A federal judge indicated he will side with Nevada gambling regulators trying to thwart prediction markets startup Kalshi’s sports betting offerings in the state.
U.S. District Judge Andrew P. Gordon heard arguments Friday in Kalshi Inc.’s lawsuit against Nevada gaming authorities over the cancellation of the platform’s event contracts. It is a closely watched case that tests whether regulation of the burgeoning prediction markets industry falls to the states or the federal government.
In April, Gordon had granted Kalshi’s request to block two Nevada gaming boards from undertaking civil or criminal actions against the company for offering bets that circumvented state laws.
But the judge was much more skeptical Friday when officials in Nevada, home of Las Vegas, the American gambling capitalthey argued that Kalshi offered sports betting under the guise of being a federally regulated derivatives exchange that was not subject to state licensing or taxes.
“I will tell you quite frankly that I am inclined to lift the court order,” Gordon said as the hearing concluded. He added that he would issue a ruling in the next two weeks.
In March, Kalshi sued Nevada gambling regulators to prevent them from imposing civil and criminal sanctions if he continued selling contracts on sports and politics.
“We are always willing to appear in court and take the judge’s direction to consult with the state very seriously,” Kalshi spokesman Jack Such said in a statement. “In the meantime, we will continue to operate our national securities exchange platform in accordance with federal law.”
Kalshi maintains that it is a federally registered derivatives exchange that reports to the United States Commodity Futures Trading Commission, CFTC. Washington’s derivatives regulator has the final power to decide what types of bets it can and cannot offer on its online platform, Kalshi said.
Kalshi is fighting similar legal battles in more than a dozen statesincluding New York, New Jersey and Massachusetts.
Although Kalshi competes with popular betting apps, its products are technically considered derivatives. The platform allows clients to buy yes or no positions on a wide range of future events, from who will win the Chilean presidential election to whether Bad Bunny will be the most popular artist on Spotify.
Kalshi argued in his lawsuit that his event contracts are recognized financial tools used to mitigate risk. “Event contracts are a quintessential example of a derivative contract; they are a type of option,” the company stated in its lawsuit.
But on Friday, Gordon questioned the grounds on whether some of Kalshi’s products qualified as derivatives.
“It seems like your definition is so broad that virtually anything can become a swap; anything can have financial consequences,” he said. “No one thought sports betting was commodities, excluded commodities or swaps until some brilliant minds at Kalshi came along.”
At another point, Gordon called it “absurd” for Congress to want contract markets designated as Kalshi “became national playgrounds on every topic imaginable.”
Prediction markets have seen an unprecedented boom in the last year, with several companies rushing to capitalize on this trend, including firms linked to President Donald Trump. Trump Media & Technology Group Corp. announced in October that it planned to offer prediction contracts on its Truth Social social network.
