Kalshi Gets A Win In Nevada Court, But How Big?

Kalshi can continue to operate in Nevada after a judge's ruling; plus a look at the legal landscape ahead for states vs. Kalshi's sports offering from Goodwin Procter’s Andrew Kim

Big legal win for Kalshi? Will should more about how to measure that soon.

Kalshi won a victory in its lawsuit against Nevada regulators in federal court on Tuesday. The scope of that victory remains to be seen, however.

A judge in a Nevada district court heard arguments about whether Nevada should be stopped from enforcing a cease-and-desist order against Kalshi. Nevada argues that Kalshi is offering illegal sports betting, and Kalshi filed suit to push back against that claim. (At least five other states have taken similar actions against Kalshi.)

The judge wrote that “plaintiff's motion for TRO and preliminary injunction are granted in part.” That seems to imply, pretty clearly, that Kalshi can continue to operate in Nevada, at least for now.

The written ruling (when we get it) should be illustrative of how much of a win this actually is for Kalshi, both in terms of the extent of the TRO/PI and the judge’s initial thoughts on the case.

A Kalshi spokesperson offered this to Front Office Sports:

“Today, the Federal Court in Nevada granted Kalshi’s preliminary injunction and blocked the State from trying to prevent Kalshi from offering prediction markets,” a Kalshi spokesperson told Front Office Sports. “We are grateful for the court’s careful attention to this matter and recognition of Kalshi’s status as a CFTC-regulated exchange. On to the next step.”

If I am reading tea leaves, that sounds like a pretty muted victory lap, and muted public statements generally aren’t Kalshi’s bag. In any event, more to come on this.

Here’s the full docket entry:

The court made preliminary remarks and heard the arguments of counsel regarding the plaintiff's motion for temporary restraining order and preliminary injunction ECF No. [18] and the defendants' countermotion for temporary restraining order ECF No. [35]. As stated on the record, plaintiff's motion for TRO and preliminary injunction are granted in part. The defendants' countermotion is denied. The court will issue a written order. The plaintiff is required to post a $10,000.00 bond by noon on April 9, 2025. The plaintiff's request to post a cash bond under Local Rule 67-1 is granted.

The legal climate for states and Kalshi

Editor’s note: The following is written by Andrew Kim, a partner in Goodwin Procter’s appellate and Supreme Court litigation and gaming, gambling and sweepstakes practices. His thoughts were originally posted on Twitter and are being published here with his consent.

Whether the Commodity Futures Trading Commission’s jurisdiction preempts state regulation of sports-related event contracts is a hard question.

For the states, the biggest issue is the Commodity Exchange Act’s Special Rule leaves to the CFTC's discretion whether to designate a "gaming" contract contrary to the public interest. 7 U.S.C. § 7a-2(c)(5)(C)(i)(V) states "the Commission may determine that such agreements, contracts, or transactions are contrary to the public interest if the agreements, agreements, contracts, or transactions involve ... gaming."

The question is who is allowed to police gaming contracts? The CFTC, state gaming commissions/law enforcement, or both? Clearly the CFTC, but the CFTC's power is up-or-down. It can't determine a contract to be "gaming" and regulate it - § 7a-2(c)(5)(C)(ii) says "[n]o agreement, contract, or transaction determined by the Commission to be contrary to the public interest ... may be listed or made available for clearing or trading on or through a registered entity."

The billion-dollar question is whether that limited role is enough to kick out the states, especially when the CFTC does not act to "determine" contracts that are clearly gaming. Kalshi says yes; states, when called to answer the question, will say no.

If courts say the CFTC's role is exclusive, even if the CFTC's only role is to "determine" or not to "determine" (that is the question), then states are unable to act for risk of interfering with the CFTC.

If I'm Kalshi, I'm trying to come up with ways to illustrate that interference. The sports-related contracts being traded now look a lot like moneyline wagers. Kalshi may want to identify contracts that might look like sports wagers but hedge against real-world risk.

Say that a court holds, "OK, states are preempted, it's the CFTC's sandbox." And say that the CFTC doesn't exercise its up-or-down power of prohibition, and just says "laissez les bon temps rouler" on sports-related event contracts. Can it meaningfully regulate these sports-related event contracts? It may not have the legal authority to do so.

The CEA requires the CFTC to police event contracts by making sure that they follow the CEA's 23 core principles. Those principles are about market manipulation, disruption, position limits, etc. 7 U.S.C. § 7(d). The CFTC doesn't have clear legal authority to issue consumer rules.

Either Loper Bright or the major questions doctrine might prevent the CFTC from issuing meaningful consumer guidelines, e.g., something akin to responsible gaming protections. And, frankly, the CFTC hasn't spent years/decades thinking about sports gaming consumer issues.

That said, could the CFTC just do it, with the cooperation of the prediction market operators? Maybe. If everyone gets along, who's going to complain/challenge? But if you're a prediction market, wouldn't you want less regulatory friction? Why cooperate once you've won on the threshold issue?

What about the states? Could they sue to force the CFTC to determine sports contracts to be gaming? Probably not. The word "may" in the CEA's Special Rule is the key; it commits "determination" to the CFTC's discretion. You can't challenge an agency's failure to exercise discretion under the Administrative Procedure Act.

I legitimately don't know if the states will be able to stem the tide and protect their jurisdiction. Kalshi's well-crafted arguments plus (possible) CFTC backing makes for a strong hand. On the other hand, the legislative history of the CEA is clear that event contracts weren't intended to facilitate sports wagering, and courts are chary about intruding on states' rights.

And if you're a state defending against a preemption lawsuit by a prediction market operator, call your state solicitor general's office.