Kalshi has continued its full-throttle response to regulatory action regarding its event futures contracts, which this year expanded to include trading based on professional and college sports outcomes. Robinhood, meanwhile, is taking a more careful approach.
Last year, Kalshi succeeded in the courtroom against the Joe Biden-era Commodity Futures Trading Commission (CFTC) to list an election-related prediction market. Now it’s using a similar playbook to push back against state-level cease-and-desist orders from Nevada and New Jersey that question its sports product.
Kalshi has sued those states and refused to take down its markets because, as a company official put it in an email, pulling them now “might be in violation of our federally regulatory requirements; we need to have open, accessible markets, and just pulling the markets could harm residents by, for example, trapping them in positions they’d want to sell.”
While the cease-and-desist orders do not carry the force of law, disobeying them risks higher monetary damages should courts find Kalshi’s actions illegal.
In early March, Robinhood began offering sports futures contracts underpinned by Kalshi’s exchange. But in contrast to Kalshi’s front-footed tactics, Robinhood has relented under state pressure and determined offering the new product is not worth the hassle in Nevada and New Jersey, even though it was not explicitly named in Nevada’s cease-and-desist order. Robinhood is also being subpoenaed by the state of Massachusetts—a longtime legal adversary—in response to the sports contracts it began listing ahead of March Madness.
Robinhood offers far more regulated financial products than Kalshi to its user base of more than 20 million people, including stock market and cryptocurrency trading, and therefore has an incentive to avoid a scorched-earth strategy toward regulators who could investigate them in other crucial business areas.
It similarly stood down when it initially tried to list sports event futures in February before the Super Bowl and was asked by the CFTC to temporarily put them on pause. That conflict has since been resolved.
As detailed in filings to Nevada’s federal district court last Friday in the case KalshiEX LLC v. Hendrick et al, Kalshi seeks a temporary restraining order and preliminary injunction in its litigation. These remedies would block the Nevada Gaming Control Board from prohibiting Kalshi from offering event contracts for trading.
The legal argument largely turns on the respective powers of federal and state governments and when the former can preempt the latter. Kalshi seeks immediate action from the court since it believes Nevada could shut down its offerings at any point.
Kalshi argues that Nevada’s attempt to block trades under the argument that they amount to unregulated gambling would unlawfully interfere with the federal Commodity Futures Trading Commission’s authority to regulate future derivatives trading. The company insists that the Commodity Exchange Act of 1936 bestows the federal government with the “exclusive purview” to oversee commodity futures regulation. Kalshi also points out that the Commodity Exchange Act of 1974 established the CFTC to oversee derivatives.
The company underscores how the Commodity Exchange Act references CFTC possessing “exclusive jurisdiction” as evidence Congress intended to preempt state regulation. Further, Kalshi cites the statute’s legislative history to support the contention that CFTC was created in part to prevent the “chaos” of a “patchwork” of potentially conflicting state laws on future derivatives. Kalshi maintains its offerings are “lawful under federal law” and that Nevada lacks authority to conclude differently.
Nevada’s Gaming Control Board did not immediately return a request for comment.
Kalshi’s New Jersey suit, KalshiEX, LLC v. Flaherty et al, makes the same claims. Michael Symons, the deputy director of communications for the New Jersey attorney general’s office, said in an email that the state has “no comment on the pending litigation.”
Both Nevada and New Jersey will have the opportunity to dispute Kalshi’s arguments in court. Expect them to assert they have both authority under their own laws and regulations to restrict Kalshi’s offerings and an accompanying duty to enforce laws and regulations when a business allegedly runs afoul of the law.
Government agencies are also typically given substantial deference by courts, which could assist Nevada and New Jersey. The states could also argue that Kalshi continuing to offer games despite cease-and-desist letters urging them to stop means potential damages are climbing.
As of Monday morning, the Nevada case has not yet been assigned to a judge and thus no hearings have been scheduled. Meanwhile, in New Jersey, U.S. District Judge Edward S. Kiel and U.S. Magistrate Judge Matthew J. Skahill will preside over Kalshi’s dispute. Expect hearings scheduled for the two cases in the weeks, if not days, ahead.
Ohio sent Kalshi, Robinhood and Crypto.com a cease-and-desist on Monday through its Casino Control Commission. It is the first state to send a cease-and-desist order explicitly naming Crypto.com, which offers a similar sports futures product on its Northern American Derivatives Exchange.
State pushback to Kalshi is a new and potentially more fruitful front than ongoing CFTC review, as the federal agency under President Donald Trump has indicated it might be more permissive toward futures markets and now has ties to Kalshi. Trump’s son Donald Trump Jr. is a Kalshi advisor, and Trump nominated board member Brian Quintenz to lead the CFTC.
The CFTC is expected to solidify its policy toward sports event futures following a roundtable discussion with industry stakeholders later this month. Any decision will likely have the same end ramifications at the federal level for Kalshi and Robinhood, though Robinhood is distinct in that it is only a brokerage rather than an exchange owner.
Sportsbook and tribal gaming interest groups are among those pushing back against sports prediction markets through the CFTC, concerned they infringe on their turf, though some sportsbook operators have shown interest in adding sports futures trading to their apps if the regulatory environment clears up.
(This story has been updated with a paragraph about Ohio sending a cease-and-desist.)
