A significant judicial victory for Kalshi prediction markets is overturned by a federal judge in Nevada.

A Nevada ruling exacerbates the nation’s courts’ increasing disagreement over whether prediction markets are bets or financial products.

A crucial court victory for prediction markets operator Kalshi was reversed by a federal judge in Nevada, who dissolved a preliminary injunction that had prevented state regulators from classifying its contracts for sporting events as unlawful gambling.

In his decision on Tuesday, US District Judge Andrew Gordon dismissed Kalshi’s claim that its registration with the Commodity Futures Trading Commission protects its markets from government regulation. He concluded that the company’s interpretation of the Commodities Exchange Act would “upset decades of federalism” in gaming law and bring sports betting under federal derivatives jurisdiction nationally.

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Kalshi plans to appeal the ruling.

A Kalshi representative stated in a statement on Tuesday, “We respectfully disagree with this decision.” “Kalshi is a regulated, national exchange for actual events, and it is under exclusive federal jurisdiction, as other courts have acknowledged.

It differs greatly from what state-regulated casinos and sportsbooks provide to its patrons. We are reviewing the ruling and plan to file an appeal with the Ninth Circuit.

In April, Gordon first issued a preliminary injunction to Kalshi. He implied that the reversal was likely during a protracted hearing earlier this month.

The ruling on Tuesday deepens the rift between courts in Nevada, New Jersey, Maryland, and California regarding whether prediction markets are financial products or bets, raising the likelihood that the Supreme Court will eventually have to rule on the extent to which federal commodities regulation can supersede state and tribal control over gambling.

The recent Kalshi judgment in Nevada

Kalshi requested an injunction to stop regulatory action after receiving a cease-and-desist order from Nevada gaming authorities in March. Since Kalshi lacks a Nevada gaming license, regulators contend that its event trading products are prohibited because they involve gambling. Kalshi contends that it is able to market its event contracts across the country because of its CFTC registration.

Gordon’s order states, “Kalshi relies on a strained reading of the already convoluted Commodities Exchange Act in an attempt to evade state regulation.” According to Kalshi’s understanding, the CFTC, not the states or Indian tribes, would have control over all sports betting nationwide. That interpretation is unsustainable, goes against Congress’s goal behind the CEA, and disrupts decades of federalism surrounding gaming regulation.

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