Kalshi has filed preliminary injunction motions in Nevada and New Jersey following cease-and-desist orders from the states’ gambling regulators.
The two lawsuits are very similar, with both seeking injunctive relief after the two states took aim at the firm’s event contracts earlier this month.
Kalshi and Robinhood have been at the forefront of gambling and payments news headlines this month, with the pair launching event contracts for the national college basketball tournaments, often referred to as March Madness.
The Nevada Gaming Control Board (NGCB) issued a cease-and-desist letter to Kalshi, alleging that the firm’s sports event contracts violate the state’s gambling laws. Similarly, the New Jersey Division of Gambling Enforcement (the Division) sent a cease-and-desist letter, claiming that Robinhood and Kalshi violate state laws by offering sports wagering on college sports.
Kalshi’s lawsuit seeks to overturn these motions, arguing that both states are overstepping by interfering with the federal government’s “exclusive” authority to regulate futures derivatives trading on exchanges, which is overseen by the Commodity Futures Trading Commission (CFTC).
The firm contends that, as a CFTC-approved exchange, its operations fall under federal jurisdiction, meaning state regulators have no authority to override the agency’s rulings.
Additionally, Kalshi argues that the actions of both regulators pose an “immediate and irreparable harm” to the company and its users. The lawsuit states that shutting down its event contracts in Nevada and New Jersey would jeopardize the firm’s viability and force the development of complex technological solutions, the feasibility of which remains untested and uncertain.
The lawsuit reads: “Defendants’ acts would also impair Kalshi’s existing contracts with consumers, subject Kalshi’s users to uncertainty and loss, and undermine confidence in the integrity of Kalshi’s platform.
“For that reason, concurrently with the filing of this complaint, Kalshi seeks an emergency temporary restraining order and preliminary injunction to avoid immediate and irreparable harm that would result from Defendants’ unlawful acts.”
A federal or a state issue?
Kalshi’s event contracts recently secured the backing of the CFTC, but this wasn’t always the case.
For a long time, the CFTC remained undecided on whether sports event contracts should be permitted. The agency’s shift in stance may be linked to its new Chair, Brian Quintenz, who previously served on Kalshi’s board. His appointment has raised questions about potential conflicts of interest and whether his influence played a role in the agency’s decision.
The debate over event contracts continues to divide regulators and lawmakers. While Kalshi and Robinhood argue that these contracts are a legitimate financial instrument, critics – such as regulators in Nevada and New Jersey – insist they are merely a form of gambling in disguise.
With legal battles now underway, the case could set a precedent for how event contracts are treated under both state and federal law, potentially reshaping the landscape of regulated prediction markets in the US.
James Kilsby, Vixio‘s Chief Analyst, commented over the debacle: “Litigation over the legality of Kalshi’s sports event markets is perhaps the most significant legal issue for sports betting in nearly a decade. Vixio has been tracking the regulation of the US sports betting market since the landmark Supreme Court ruling of 2018 that called time on the federal prohibition, and Kalshi’s litigation marks a key turning point for the future of the market.
“At stake is whether regulation of sports wagering will continue to be a matter for state and tribal governments to determine, or whether there will be a new paradigm of federal regulation that enables licensed exchanges to operate across all 50 states under a framework that does not mesh with state laws on traditional forms of gaming.”
