Kalshi court losses pile up as judges refuse to block state gambling laws

Kalshi’s legal offensive has hit a wall. In the past week, two federal appellate courts have turned down the prediction‑market firm’s attempts to block state gambling statutes in Connecticut, New York and Nevada, while Arkansas’s attorney general has filed a fresh lawsuit accusing the company of flouting state gambling rules. The pattern emerging across the country is clear: state regulators are not buying Kalshi’s claim that its platform merely offers “swaps” under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). Instead, they are treating many of the firm’s wagers as classic gambling, subject to the same restrictions that apply to casinos and sportsbooks.

Federal courts push back on Kalshi’s “swap” argument

The Ninth Circuit’s August decision set a precedent that Nevada can stop Kalshi from allowing sports bets, with a three‑judge panel concluding that such wagers are not swaps and therefore fall under state gambling law. Kalshi’s request for an en banc rehearing was flatly denied, with the court noting that no judge requested a vote on the matter. Similarly, the Second Circuit rejected Kalshi’s bid for preliminary injunctions in New York and Connecticut, holding that the company had not demonstrated a likelihood of success on the merits. The panel emphasized that Kalshi had failed to meet the legal threshold required for a pre‑trial injunction, and even refused to overturn a comparable loss suffered by Coinbase in Connecticut.

These rulings underscore a judicial willingness to look beyond Kalshi’s semantic framing of its products. While the company insists that its contracts are “swaps” regulated by the CFTC, the courts are drawing a line between financial contracts and wagers that simply let users bet on the outcome of events. The distinction matters because it determines whether a single federal regulator can preempt a patchwork of state gambling regimes.

Arkansas sues, citing age and tax violations

Arkansas Attorney General Tim Griffin filed a state‑court suit alleging that Kalshi violated state law by allowing 18‑year‑olds to place wagers and by sidestepping tax and licensing requirements. Griffin stressed that Arkansas law focuses on the substance of the activity, not the terminology used by the platform. He pointed out that state statutes set the minimum age for electronic wagering at 21, a threshold Kalshi allegedly ignored. The complaint also accuses the company of profiting from bets on sports and entertainment events without the oversight mandated for lawful gambling operators.

Kalshi’s response was to argue that it should not have to navigate a different regulatory regime in each state, asserting that Congress created a single, nationwide regulator for such markets. The company framed the Arkansas suit as “baseless,” insisting that its operations conform to federal CFTC rules. Nonetheless, the Arkansas filing adds another front to a growing legal battle that could force Kalshi to either obtain state licenses or shut down its services in jurisdictions that deem its offerings illegal.

Other states join the fight, and the CFTC steps in

Beyond Arkansas, a wave of state actions is converging on Kalshi and similar platforms. Utah’s attorney general previously lodged criminal charges, and a federal judge there affirmed the state’s authority to enforce its anti‑gambling statutes against Kalshi. The Sixth Circuit also ruled against the company in a September case involving Ohio and Tennessee, finding that those states could enforce their gambling laws. In total, the CFTC has sued a slate of states—including Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, Utah and Wisconsin—asserting that it alone should regulate prediction markets.

This dual‑track litigation, with states pursuing enforcement while the CFTC claims exclusive jurisdiction, creates a legal labyrinth. The outcome will hinge on whether courts accept the CFTC’s definition of swaps as encompassing all of Kalshi’s contracts, or whether they side with states that argue certain wagers fall outside that definition and thus remain subject to traditional gambling regulation.

The lone bright spot: New Jersey’s Third Circuit win

Kalshi’s most notable victory came in April when the Third Circuit ruled that New Jersey could not regulate sports bets on prediction markets, labeling those contracts as swaps under the federal definition. The panel highlighted that swaps are contracts whose payment depends on the occurrence or non‑occurrence of an event, a description that matches Kalshi’s product. By affirming CFTC jurisdiction, the court gave Kalshi a foothold for future arguments that its platform should be treated as a financial exchange rather than a gambling operation.

Even so, the Third Circuit’s decision did not settle the broader dispute. New Jersey has petitioned the Supreme Court to reverse the ruling, and a coalition of 39 states plus the District of Columbia filed an amicus brief supporting the petition. The Supreme Court’s eventual stance could either cement the Third Circuit’s reasoning as a national standard or overturn it, reshaping the regulatory landscape for prediction markets across the United States.

Political undercurrents: Trump administration’s involvement

The legal drama is not occurring in a vacuum. The Trump administration has thrown its weight behind Kalshi, with Donald Trump Jr. serving as an advisor in exchange for an equity stake. This alignment signals a broader policy preference for loosening state gambling restrictions in favor of a unified federal framework that benefits tech‑driven financial platforms. While the administration’s lawsuits against states reinforce the CFTC’s claim to exclusive authority, the courts’ recent decisions suggest that judicial opinion is not automatically swayed by political connections.

Kalshi’s reliance on high‑profile political backing underscores the stakes for the industry: a favorable ruling could open the door for nationwide, federally regulated prediction markets, while continued setbacks could force companies to either secure a patchwork of state licenses or abandon markets deemed illegal under state law.

What the next steps could look like

With the Ninth and Second Circuits refusing to grant injunctions, and Arkansas moving forward with its state suit, Kalshi faces a narrowing set of legal avenues. The company will likely continue to appeal to higher courts, perhaps seeking a Supreme Court review of the conflicting circuit decisions. Meanwhile, the CFTC’s ongoing litigation against multiple states may create pressure for a definitive resolution from the nation’s highest court.

If the Supreme Court ultimately sides with the CFTC, the result could be a uniform federal regulatory regime that treats prediction‑market contracts as swaps, effectively preempting state gambling laws. Conversely, a decision that upholds state authority would compel platforms like Kalshi to obtain state licenses, adhere to age restrictions, and pay applicable taxes, fundamentally reshaping the business model for prediction markets in the United States.

Bottom line: Kalshi’s battle is a litmus test for the future of prediction markets

The cascade of recent defeats—rejections by the Ninth and Second Circuits, the Arkansas lawsuit, and earlier losses in Ohio, Tennessee and Nevada—illustrates that courts are willing to look past Kalshi’s “swap” label and enforce traditional gambling statutes. The company’s lone win in New Jersey remains an outlier, and the pending Supreme Court petition could determine whether that outlier becomes the rule.

For now, Kalshi must brace for a protracted legal fight that could either cement a federal‑only regulatory path for prediction markets or force the industry into a fragmented state‑by‑state compliance regime. The outcome will have far‑reaching implications not only for Kalshi but for every platform that lets users wager on everything from sports scores to political outcomes. As the courts continue to weigh substance over semantics, the future of prediction markets hangs in the balance.

This article was produced with AI-assisted research and editorial support. Reporting is based on the source material cited below. Sources: Ars Technica; arstechnica.com; Global1.News (06 November 2026).

By Jessica Ali, Staff Writer