Kalshi was temporarily banned in Nevada, marking the latest escalation in the deepening regulatory war over prediction markets. Nevada’s First Judicial District Court issued a 14-day restraining order, effective immediately, prohibiting the company from “offering a derivatives and forecast exchange market that offers contracts based on sports, election and entertainment events” without first obtaining a gaming license.
This is the first time a US state has forced a company to cease operations. Kalshi declined to comment.
This particular legal battle began a little over a year ago when Nevada regulators sent Kalshi a cease-and-desist letter demanding it stop offering contracts for sporting events. This sparked a tumultuous dispute between plaintiffs and defendants as the case was transferred between state and federal court. Until now, Kalshi was able to continue operating in the state because her lawyers were fighting authorities in what the company described as a “jurisdictional quagmire.”
After 14 days, the court will assess whether to extend the ban for the duration of the court case. “We expect the judge to convert the 14-day TRO into a case-wide preliminary injunction,” says gaming attorney Daniel Wallach.
The ruling comes after a particularly tumultuous few weeks for Kalshi. On Tuesday, the Arizona attorney general brought criminal charges against the company, accusing it of conducting illegal gambling activities. Just days earlier, Kalshi had filed a lawsuit against Arizona regulators, preemptively challenging any efforts to force compliance with the state’s gambling laws.
There are dozens of similar legal battles taking place across the country over whether prediction markets should be forced to comply with state gambling laws, including: in Ohio, Tennessee and Massachusetts.
Many well-known prediction marketplace platforms, including Kalshi, offer sports-related deals to people over the age of 18 throughout the United States, even where state gambling laws prohibit sports betting. As a result, the 19-year-old from Utah can bet on the outcome of a football game through prediction markets, but not through sports betting because the state completely bans it. It also means that a 19-year-old living in Indiana can place a similar bet on the prediction market, even though the state’s gambling law prohibits anyone under 21 from placing bets. That infuriated a growing group of bipartisan lawmakers.
Kalshi argues that its sporting event contracts – where you can bet, for example, on which team will win the Super Bowl or a specific March Madness basketball game – are not a form of wagering. Instead, the company says they should be viewed as financial instruments called “swaps.” For now, the federal government agrees. The Commodity Futures Trading Commission (CFTC), the U.S. agency that oversees swaps and other derivatives markets, maintains that it has exclusive jurisdiction over forecast markets. The agency’s head, Michael Selig, strongly rejected claims that the industry should be subject to state gambling laws, telling critics he would meet them “in court.”
The federal government’s stance has not deterred various state attorneys and gaming commissions from continuing the legal battle, and they have scored some notable victories recently. In January in Nevada blocked Polymarket with operations in the country; the ephemeral restraining order is in effect until April. It was a victory for the party anticipating that markets were gambling, albeit a circumscribed one: While Polymarket has a modest official presence in the U.S., most of its trading volume takes place on the global exchange, which is technically blocked in the U.S. but available to traders willing to operate virtual private networks (VPNs) to circumvent the ban.
Last week, an Ohio judge dismissed Kalshi after the prediction market company filed for a preliminary injunction to prevent state regulators from prosecuting it for violating state gambling laws. IN her order in denying Kalshi’s motion, U.S. District Court for the Southern District of Ohio Judge Sarah D. Morrison wrote that the court had an obligation “to avoid absurdities.”