Kalshi and Polymarket Lose Bids to Block State Gambling Lawsuits
Prediction market giants Kalshi and Polymarket have lost their legal bids to halt gambling-related lawsuits against them. The cases, filed in Nevada and Washington, will now proceed in state courts.
The Ninth Circuit Panel denied requests from both platforms to block lower-court rulings. The judges stated that the companies failed to prove their cases belong in federal court. This ruling marks a significant setback for the federally regulated prediction platforms.
The Core Conflict: Federal Oversight vs State Gaming Laws
- The Platforms’ Stance: Kalshi and Polymarket argue the Commodity Futures Trading Commission (CFTC) holds exclusive jurisdiction over event contracts.
- The States’ Stance: Nevada and Washington argue that sports and political outcome contracts amount to unlicensed gambling under state laws.
- The Court’s Ruling: The judges ruled that raising a federal defense does not automatically move a state-level case into federal jurisdiction.
Specific Charges Facing Kalshi and Polymarket
The legal challenges differ slightly by state, but both target the core mechanics of prediction markets:
- Nevada: The state’s case focuses on the platforms operating without official local gaming licenses.
- Washington: This lawsuit centers directly on whether Kalshi’s event contracts constitute illegal gambling products.
The court also rejected Polymarket’s argument that it was acting under federal direction simply because it complies with CFTC oversight. The panel noted that compliance alone does not equal federal officer status.
Growing Legal Split Over Prediction Markets
A messy patchwork of state rulings is emerging across the United States regarding crypto and fiat prediction contracts:
- New Jersey: An appeals court recently sided with Kalshi, blocking state efforts to halt sports contracts.
- Ohio, Maryland, and Nevada: Courts in these states have increasingly sided with local gambling regulators.
- Nevada Precedent: In April, a state judge extended a ban on Kalshi’s sports contracts, calling them indistinguishable from traditional sports betting.
CFTC and DOJ Strike Back
The battle is far from over as federal agencies fight to protect their regulatory turf. The CFTC and the Department of Justice (DOJ) have launched counteroffensives against several states, including Minnesota, Illinois, Arizona, and Connecticut.
Federal authorities argue that individual states are unlawfully interfering with federally regulated derivatives markets. For now, the Ninth Circuit’s decision means Kalshi and Polymarket must fight their immediate battles on the state level.
