Kalshi insists its products are financial instruments. State regulators insist they are bets. A Nevada judge has sided firmly with the regulators, and the fight is now playing out in courtrooms across the country.
The prediction markets company Kalshi has suffered another significant legal setback, with a Nevada judge confirming a preliminary injunction that prevents the platform from offering event-based contracts to state residents without first obtaining a gaming licence. The ruling, delivered at a Carson City hearing on 3 April by Judge Jason Woodbury, rejected Kalshi's central legal argument and extended existing restrictions through 17 April while the longer-term injunction is finalised.
The core dispute in Nevada mirrors the argument Kalshi is making in every jurisdiction where it faces regulatory challenge. The company contends that its event contracts are financial instruments, functioning as swaps rather than traditional wagers, and that they fall under the exclusive federal oversight of the Commodity Futures Trading Commission. If that argument holds, state gaming regulators would have no jurisdiction over Kalshi's products regardless of what those products look like to a casual observer.
Judge Woodbury did not find that argument persuasive. His position at the hearing was direct: placing money on a sporting outcome through Kalshi's platform is the same, in any meaningful sense, as placing a bet through a state-licensed bookmaker. The label attached to the instrument does not change the nature of the activity.
That reasoning, if it becomes the dominant judicial interpretation across the United States, poses an existential challenge to Kalshi's current operating model. The company has been expanding aggressively on the basis that its CFTC-regulated status insulates it from state gaming law. Court after court is now testing that assumption, and the results are not encouraging for the platform.
The Nevada order also carries a practical enforcement dimension. Kalshi is required to implement full geofencing controls by 4 May, ensuring that no Nevada resident can access any market that would violate state gaming laws. That requirement was included in the original temporary restraining order issued on 20 March, which had already blocked access to contracts covering sports, elections and entertainment before the preliminary injunction extended those restrictions further.
The legal map surrounding Kalshi is becoming increasingly complicated. In Arizona, the Attorney General's office filed 20 misdemeanour counts in March 2026 related to alleged unlicensed sports and election wagering. Kalshi responded by filing a federal lawsuit challenging Arizona's action almost immediately. Washington's Attorney General has pursued a civil filing, arguing the platform violated both gambling laws and consumer protection rules. In Massachusetts, Kalshi is appealing a preliminary injunction that has frozen its sports-related contracts, but those markets remain offline while the appeal progresses. Last month in Ohio, District Court Chief Judge Sarah D. Morrison denied Kalshi's request for an injunction that would have prevented the Ohio Casino Control Commission from applying state sports betting laws to the platform.
The company has not been entirely without success. In New Jersey, state officials are appealing a federal injunction that prevented enforcement of a cease-and-desist order, meaning Kalshi retains some operational ground there. In Tennessee, a judge ruled the company could continue operating while a similar state suit is reviewed. But those reprieves are narrow and conditional, and they do not alter the broader direction of the legal campaign being waged against the platform at state level.
The Federal Versus State Jurisdiction Argument Is Crumbling
Kalshi's legal strategy rests almost entirely on the proposition that CFTC regulation pre-empts state gaming law. That is a legitimate legal argument with genuine precedent behind it in other areas of federal pre-emption doctrine. But it is proving extremely difficult to win in practice when the product being scrutinised involves placing money on the outcome of a sports event. Judges across multiple jurisdictions are applying a common-sense test: does this look and function like gambling? When the answer is yes, the federal pre-emption argument has so far failed to overcome it. Unless Kalshi can find a federal court willing to issue a definitive ruling in its favour that binds state regulators, it is fighting an expensive and exhausting rearguard action in every state simultaneously.
The Regulatory Arbitrage Window Is Closing
Kalshi's rapid expansion was built, at least in part, on the assumption that operating under CFTC oversight created a regulatory moat that state gaming authorities could not cross. That assumption made commercial sense when it was being tested in theory. It is making far less sense now that it is being tested in courtrooms. The states that have moved most aggressively, Nevada, Arizona, Ohio and Washington, are not small or easily ignored jurisdictions. They represent a significant share of the US adult population and, in Nevada's case, the symbolic heartland of American gambling regulation. Each state-level loss narrows the territory in which Kalshi can operate freely and increases the compliance and legal costs of continuing to do so.
The Outcome of This Battle Will Define the Prediction Markets Sector
Kalshi is not the only company operating in the event contracts space, but it is the most prominent and the one bearing the full weight of regulatory scrutiny right now. How this legal battle ultimately resolves will set the terms for every prediction market operator that follows. If Kalshi wins a definitive federal ruling establishing CFTC pre-emption, it will open the door to a new category of product operating outside state gaming frameworks across the country. If the states prevail, prediction market operators will face the same licensing, taxation and compliance requirements as any other sports betting platform, fundamentally altering the economics and competitive positioning of the entire sector. The stakes extend well beyond one company's legal bills.
