Two appeals courts have reached opposite conclusions on whether state gaming law can touch Kalshi's sports contracts, and the casino industry has now joined four states already suing.
Prediction market platforms built their sports-related contracts on the argument that federal derivatives law, not state gambling regulation, governs how they operate. That argument now faces a direct legal conflict: two federal appeals courts have looked at essentially the same question and reached opposite answers.
The Ninth Circuit ruled that federal law does not preempt Nevada's gaming regulations as they apply to Kalshi's sports contracts, allowing the state's enforcement action to proceed. The Third Circuit, in a separate case, reached the opposite conclusion, finding that similar contracts likely qualify as federally protected instruments that preempt state restriction. The result is a genuine circuit split on the same underlying legal question.
At least four states, Nevada, New York, Connecticut, and Massachusetts, are pursuing legal action against Kalshi on theories ranging from gaming-license violations to consumer-protection claims involving underage betting. Massachusetts's case has moved furthest, with the state's Attorney General securing a court order and a judge separately denying Kalshi's request for an emergency stay. The casino industry has also organized against prediction-market platforms, treating them as competitors for the same sports-betting audience without the same state regulatory structure.
Existing contracts continue trading, so the split does not immediately shut down the product. It does reduce certainty around how durable a nationwide operating model can be when federal courts disagree over whether state gaming law applies. Circuit splits can eventually draw Supreme Court review, and Congress could also clarify the statute, but neither path is quick or guaranteed to preserve the platforms' current model.
Kalshi has continued expanding commercially during the same period, including marketing partnerships with five Major League Baseball teams. That growth does not resolve the legal question. It shows the company is continuing to build the sports business while the regulatory foundation beneath it remains contested.
For investors, counterparties, and users, the central issue is no longer whether individual states object to prediction-market sports contracts. It is whether a national business model can remain uniform when federal appeals courts themselves disagree over who has the authority to regulate it.