Kalshi, the prediction market platform shaking up traditional betting models, just scored a big win in Nevada. A federal judge ruled this week that the company can keep operating its sports event contracts in the state while its legal battle with Nevada regulators plays out. This decision isn’t just a temporary relief for Kalshi—it’s a flashpoint in the wider clash between federal oversight and state gambling laws.
Federal vs. State Showdown Heats Up
We’re a swaps market, not a sportsbook
At the heart of the fight is a simple question: Who gets to regulate prediction markets? Kalshi argues it’s already under the watchful eye of the Commodity Futures Trading Commission (CFTC), the federal agency that oversees derivatives trading. Since its launch, Kalshi has framed its contracts—which let users bet on everything from election results to NFL games—as financial instruments, not gambling products. “We’re a swaps market, not a sportsbook,” co-founder Tarek Mansour emphasized in a recent statement.
Nevada’s Gaming Control Board (NGCB) isn’t buying it. Regulators slapped Kalshi with a cease-and-desist order in March, alleging the platform’s sports contracts violate state gambling laws. Their stance? If it looks like a bet and acts like a bet, it’s a bet—and Nevada gets to regulate it. But Judge Andrew P. Gordon’s ruling temporarily blocks that order, siding with Kalshi’s argument that federal oversight preempts state gaming laws.
Not Just Nevada: A Nationwide Regulatory Puzzle
Nevada’s case is far from isolated. Over the past year, New Jersey, Illinois, Ohio, and Montana have all issued similar cease-and-desist orders against Kalshi. Even Robinhood and Crypto.com, which partnered with Kalshi to expand their prediction markets, are facing heat. Ohio’s Casino Control Commission and Illinois’ Gaming Board have launched probes into these platforms, arguing their contracts amount to unlicensed sports betting.
And recently, we have reported that Connecticut Department of Consumer Protection launched an investigation into the platform’s operations.
But Kalshi’s legal team is fighting back. In April, the company sued both Nevada and New Jersey, claiming state regulators are overstepping their authority. “Prediction markets are a 21st-century innovation, and like all innovations, they’re misunderstood at first,” Mansour said. A win in Nevada could set a precedent that weakens other states’ cases—especially since a federal judge already greenlit Kalshi’s election-based contracts in late 2024.
The CFTC’s Changing Tune
Kalshi’s federal ally, the CFTC, has its own evolving stance. In February 2025, acting Commissioner Caroline Pham announced a shift toward “protecting fraud victims” over aggressive enforcement—a move welcomed by prediction market operators after years of Biden-era scrutiny. Notably, the CFTC recently closed an investigation into Kalshi’s Super Bowl-themed contracts without penalties, signaling a more hands-off approach.
But don’t mistake this for a free pass. The CFTC still requires Kalshi to register as a designated contract market (DCM), subjecting it to rules like position limits and anti-manipulation safeguards. Critics argue these requirements are too lax compared to state gaming licenses, which involve rigorous background checks and revenue-sharing agreements with tribes or casinos.
Why Regulators Are Worried
State officials aren’t just being stubborn. Traditional gambling laws exist to prevent fraud, protect consumers, and ensure tax revenue—goals that clash with Kalshi’s peer-to-peer model. For example:
- Nevada mandates that sportsbooks share up to 6.75% of revenue with the state. Kalshi’s swap-style contracts bypass this, costing states potential income.
- Arizona and North Carolina are monitoring the situation closely, wary of unlicensed operators undercutting their legal markets.
- Connecticut has been investigating Kalshi since late 2024, though officials remain tight-lipped about next steps.
Tribal gaming groups are also alarmed. Many rely on casino revenue-sharing deals that could unravel if prediction markets siphon off bettors. “This isn’t just about legality—it’s about economic survival for some communities,” one tribal gaming attorney told Gaming Intelligence.
Economic Impact on States
The economic implications of prediction markets are significant. Traditional sports betting is a multi-billion-dollar industry, with states like New York and Pennsylvania raking in hundreds of millions in tax revenue annually. If platforms like Kalshi continue to operate outside this framework, states could lose substantial revenue. For instance, in 2024, New York collected over $700 million in sports betting taxes alone.
There is substantial concern not just toward prediction markets, but toward all online platforms such as casinos which players can access through VPNs, thus bypassing all local regulations.
Moreover, the rise of prediction markets could disrupt the delicate balance between legal sportsbooks and tribal gaming operations. In states like California, where tribal casinos are a major economic driver, any shift in betting habits could have far-reaching consequences.
Consumer Protection Concerns
Another major concern is consumer protection. Traditional sportsbooks are heavily regulated to ensure fairness and prevent fraud. In contrast, prediction markets operate with fewer safeguards, raising questions about how users are protected from manipulation or unfair practices. The CFTC’s oversight is seen as less stringent than state gaming commissions, which often require operators to implement robust anti-money laundering measures and age verification processes.
Kalshi argues that its platform is designed to be transparent and secure, with built-in mechanisms to prevent market manipulation. However, critics point out that these measures may not be as robust as those required by state regulators. As the debate continues, finding a balance between innovation and consumer protection will be crucial.
The Future of Prediction Markets
The legal battle in Nevada is just one chapter in a broader story about the future of prediction markets. As these platforms grow in popularity, they’re forcing regulators to rethink how they classify financial instruments in the digital age. Whether states or the feds will ultimately prevail remains to be seen, but one thing is clear: prediction markets are here to stay, and their impact will be felt across the financial and gaming sectors.
In the coming months, expect more states to weigh in on the issue. Florida, which has been watching the situation closely, might be the next to take action. Meanwhile, Kalshi and similar platforms will continue to push the boundaries of what’s possible in the world of prediction markets.
How Other Countries are Dealing with Prediction Markets
Internationally, countries like Australia and Canada have already begun grappling with similar regulatory challenges. In Australia, for example, the Australian Securities and Investments Commission (ASIC) has issued guidelines on how to treat prediction markets, emphasizing the need for clear consumer protections. Canada has taken a more cautious approach, with provincial regulators closely monitoring any new developments in the space.
These international perspectives highlight the global nature of the challenge. As prediction markets expand beyond U.S. borders, regulators worldwide will need to collaborate to ensure consistent standards and protections.
Technological Innovations and Public Perception
The technology behind prediction markets is rapidly evolving. Blockchain and decentralized finance (DeFi) platforms are exploring ways to integrate prediction markets into their ecosystems, promising greater transparency and security. However, these innovations also raise new regulatory questions, as decentralized systems often operate outside traditional oversight frameworks.
Kalshi itself is investing heavily in blockchain technology to enhance its platform’s security and efficiency. This move could further blur the lines between financial instruments and traditional gambling, making regulatory clarity even more urgent.
Public perception plays a significant role in shaping the regulatory landscape. As more people engage with prediction markets, there’s growing awareness of their potential benefits and risks. Surveys show that many users view these platforms as a fun way to engage with sports and events, while others express concerns about their impact on traditional betting markets.
Engaging the public in the regulatory debate is crucial. By understanding user needs and concerns, regulators can craft policies that balance innovation with consumer protection. This dialogue will be essential as prediction markets continue to grow and evolve.
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