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Prediction markets have gone from a small internet curiosity to a major business generating significant revenue. With that rapid growth, regulators are paying closer attention.
Kalshi sits at the center of the debate. The company is now facing nearly 20 federal lawsuits that could reshape how prediction markets operate in the U.S. for years to come.
What is unfolding in courtrooms goes far beyond a single platform. The rulings will help determine whether prediction markets are treated as financial tools or as gambling.
Kalshi’s model: derivatives or gambling?
Kalshi allows users to trade simple yes-or-no contracts tied to future events. Those events can range from politics and pop culture to sports. State regulators are particularly focused on the company because sports-related markets account for roughly 90% of platform activity.
Kalshi argues that it is not a betting site. Its federally regulated exchange is overseen by the Commodity Futures Trading Commission. The company maintains that its event contracts are derivatives, not wagers, and therefore should not be subject to state gambling laws.
That classification carries significant consequences. Traditional sportsbooks must obtain state licenses, pay taxes, comply with advertising restrictions, and operate only where permitted. Kalshi says federal oversight allows it to operate nationwide, even in states where sports betting remains illegal.
State regulators push back against Kalshi
Tribal regulators, State gaming commissions, and lawmakers have pushed back forcefully. Several lawsuits argue that Kalshi is effectively offering illegal sports betting under another name. Regulators point to player propositions, parlays, and live betting features as evidence that the platform functions like a sportsbook.
Additional lawsuits add pressure. Some plaintiffs allege that Kalshi’s design promotes excessive gambling through fast-moving markets, constant alerts, and highly engaging visuals. Several of these cases are seeking class-action status.
Kalshi has responded by suing states, arguing that federal law preempts state law. Courts have so far issued mixed rulings. Judges in Maryland and Massachusetts have sided with regulators, while earlier decisions elsewhere gave Kalshi temporary relief.
A recent ruling in Nevada dealt a significant blow, concluding that Kalshi’s products amount to sports betting regardless of how the company characterizes them.
How politics are shaping Kalshi’s legal battle
Federal signals have added to the uncertainty. Under the current administration, the CFTC suggested it may defend its exclusive jurisdiction over derivatives markets, potentially challenging states that move against prediction platforms. That position has attracted interest from large financial and betting companies exploring competing services.
Previous attempts to rein in the industry stalled. A proposed rule during the Biden administration sought to block sports and election-related contracts but was never finalized. As a result, judges are now interpreting laws written long before app-based prediction markets existed.
U.S. prediction markets at a crossroads
If Kalshi loses, prediction markets may be required to follow the same rules as sportsbooks. That would mean state licenses, taxes, and geographic restrictions—steps that could slow growth but provide clearer regulatory boundaries.
If Kalshi prevails, federally regulated prediction markets could operate nationwide, bypassing long-standing state controls. In that scenario, Congress or the Supreme Court would likely be forced to intervene.
