‘History reveals no evidence’ Congress intended to preempt gambling laws, judge says in Kalshi case

An Ohio judge isn't buying Kalshi's argument that its right to operate as a federally-regulated prediction market supersedes state laws governing sports betting.

"History reveals no evidence that Congress intended to preempt state sports gambling laws," Chief Judge Sarah D. Morrison of the U.S. District Court for the Southern District of Ohio said in a ruling from Monday.

Judge Morrison denied Kalshi’s request for a preliminary injunction, which the company sought to block Ohio regulators from enforcing the state’s gambling laws against its event contracts. Kalshi operates a prediction markets platform which allows people to wager on the outcomes of specific events, including sports. 

The setback is part of a broader legal battle between Kalshi and various states, as the company and regulators are at odds over whether the event contracts the prediction market platform offers — which allow users to bet on positive or negative outcomes — amount to sports betting.

Kalshi's predicament is serving as a test of whether prediction markets are subject to federal derivatives law or state gambling rules. How these cases are decided could impact the legal future of other prediction platforms, including its rival Polymarket.

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Kalshi argues that the events contracts it offers are regulated under the Commodity Exchange Act, which is enforced by the Commodity Futures Trading Commission (CFTC), and that authority supersedes state law.

Last year, the Ohio Casino Control Commission accused Kalshi of running illegal sports betting in the state, according to the court filing.

In the judge's ruling, Morrison cited more historical evidence when making her case that Congress did not intend to preempt state gambling laws.

"Consider the legal landscape in 2010, when Dodd-Frank amended the CEA to govern swaps. At the time, the Professional and Amateur Sports Protection Act... largely prohibited states from authorizing sports betting," the judge wrote. "There is no evidence that Congress intended the Commodity Exchange Act to preempt sports gambling laws in those few states where it was allowed under PASPA. In fact, all available evidence points to the contrary."

A Kalshi spokesperson said an appeal was forthcoming: "We respectfully disagree with the Court’s decision, which splits from a decision from a federal court in Tennessee just a few weeks ago, and will promptly seek an appeal," they said.

Earlier this year, a Tennessee judge ruled differently from the Ohio judge and granted Kalshi's motion for a preliminary injunction. The judge also found that Kalshi is likely to succeed in arguing that sports event contracts qualify as swaps under federal commodities law, which would mean they could end up preempting state regulation.