CFTC walks away, clearing path for Kalshi's political betting contracts
The Commodity Futures Trading Commission (CFTC) has formally requested the dismissal of its appeal challenging the legality of event contracts based on U.S. election outcomes offered by prediction market operator Kalshi. The regulator filed a Motion for Voluntary Dismissal with the D.C. Circuit Court of Appeals on 5 May 2025, effectively ending the federal government’s legal fight against these specific types of contracts.
After the regulator’s decision, Kalshi CEO Tarek Mansour said, “Election markets are here to stay. Prediction markets have been banned, censored, limited, and pushed out for decades. This win solidifies their right to exist and thrive.” CFTC’s decision is a decisive shift from its previous stance under the prior administration, which had actively opposed Kalshi’s election contract proposals.
The change follows a period where the current administration has been perceived as potentially more amenable to event contracts, highlighted by personnel changes, including the nomination of a former Kalshi board member as the upcoming chairman of CFTC.
Also read: Legal expert backs NBA in prediction market warning
Background: The path to election contract legality
The dispute originated in 2023 when the CFTC initially denied Kalshi’s proposal to list contracts tied to the control of Congress, arguing they constituted prohibited gaming. Kalshi sued the CFTC in late 2023. While a district court initially sided with the CFTC, upholding the denial, subsequent legal challenges proved successful for Kalshi.
The court rulings finally permitted Kalshi to offer contracts based on election outcomes. A key factor in these decisions was the finding that Kalshi’s specific election contracts did not constitute “gaming” under the relevant statutes.
Sports contracts face separate state-level challenges
It should be understood that the CFTC’s withdrawal from the election contract case has no direct legal impact on a different and escalating conflict regarding Kalshi’s sports event contracts. These contracts, which allow users to trade on the outcomes of individual sporting events, are facing legal challenges from numerous state regulators.
Multiple states argue that these sports-related offerings are functionally equivalent to sports betting or illegal gambling, activities traditionally regulated under state law. State authorities contend that Kalshi is operating unlicensed sports wagering pools in violation of state constitutions and gaming laws.
Kalshi vehemently disputes this characterisation. The company asserts that it operates as a Designated Contract Market (DCM) under the CFTC’s authority. Kalshi maintains that the Commodity Exchange Act (CEA) grants the CFTC “exclusive jurisdiction” over its activities, thereby pre-empting state laws under the U.S. Constitution’s Supremacy Clause. Kalshi frames its products as financial instruments traded on a federally regulated exchange, not as wagers. At the heart of the dispute between prediction markets and state-level authorities lies the fundamental dispute over regulatory authority–federal financial oversight versus state gaming control.
Also read: CFTC regulates us, won’t stop until they ask us to: Kalshi co-founder
State actions and Kalshi’s response
The conflict over sports contracts has rapidly escalated. Regulators in at least six states – Nevada, New Jersey, Maryland, Illinois, Montana, and Ohio – have issued cease-and-desist letters demanding Kalshi halt its sports offerings within their borders. Additionally, other states like Connecticut, Washington, and Kansas are reportedly investigating Kalshi or prediction markets generally. Massachusetts authorities also subpoenaed Kalshi partner Robinhood regarding related offerings.
Rather than comply, Kalshi has adopted an aggressive legal strategy, proactively filing federal lawsuits against regulators in Nevada, New Jersey, and Maryland. In these suits, Kalshi seeks preliminary injunctions to prevent states from enforcing their cease-and-desist orders while the cases proceed, arguing federal pre-emption.
Kalshi has secured significant early victories. Federal judges in both Nevada and New Jersey granted preliminary injunctions, allowing Kalshi to continue offering sports contracts in those states for the time being. The judges found Kalshi demonstrated a likelihood of success on the merits of its federal pre-emption argument and faced irreparable harm if forced to cease operations. Arguments regarding substantial economic damage, including potential lost business, impacts on partnerships like Robinhood, and multi-million-dollar compliance costs for geofencing, were considered in assessing this harm.
Lingering uncertainty and broader implications
Despite Kalshi’s early wins in Nevada and New Jersey, the legal landscape remains very much uncertain. Preliminary injunctions address only immediate harm and likelihood of success; they do not represent final judgments on the complex legal questions involved. The core issue – whether the Commodity Exchange Act fully pre-empts state gambling laws when applied to sports event contracts offered on a federally regulated exchange – is far from resolved.
Adding to the ambiguity is the CFTC’s own position. The agency abruptly cancelled a planned public roundtable on event contract regulation scheduled for 30 April 2025. Critics claim that the CFTC’s own rules prohibit contracts based on “gaming”, a definition central to the states’ arguments against Kalshi’s sports offerings.
US-based iGaming attorney Daniel Wallach has commented that, “There’s a pretty decent chance that the D.C. Circuit will refuse to dismiss the CFTC v. Kalshi appeal, even on consent.“
“The appeal has been fully briefed, orally argued (months ago), and a draft opinion has probably already been circulated. The issues are also of public importance,” Wallach said on a LinkedIn .
If Kalshi ultimately prevails and establishes the supremacy of federal regulation for its sports contracts, it could fundamentally disrupt the existing state-by-state model for legalised sports betting, potentially allowing platforms like Kalshi to operate nationwide under a single federal framework. Conversely, if state regulators succeed in classifying these contracts as gambling subject to state law, it could significantly curtail the scope of prediction markets or force them into the existing state licensing structures.
