A federal appellate court rules that Kalshi’s sports prediction contracts must comply with state regulations

Following their surge in popularity after the 2024 election, prediction markets offering sports-related contracts have faced significant regulatory pushback from state authorities. States argue that these platforms are directly competing with state-regulated gambling operators by offering identical products. A primary contention is that federally regulated platforms evade state taxes while simultaneously competing with state-taxed entities. Furthermore, a major point of friction is that prediction markets frequently allow users as young as 18 to participate, whereas most state gambling operators enforce a minimum age of 21.

In the recent ruling issued on Friday, the three-judge appellate panel acknowledged that Kalshi possessed the legal standing to pursue the case. However, the court determined that the products at the center of the dispute did not qualify as federally regulated swaps.

The court’s decision stated: “While we agree with Kalshi that its sports-event contracts are conditioned upon the occurrence of ‘event[s],’ we conclude that Kalshi’s contracts do not depend on events associated with a potential financial, economic, or commercial consequence as defined by the statute.”

To illustrate the court’s reasoning, the ruling cited a hypothetical scenario involving the New York Giants winning the Super Bowl. The court noted that the outcome would hinge entirely on the definition of the “event.” If the event is defined as the Giants winning the championship, then that victory would constitute “that event having occurred.”

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