US Prediction Markets in Legal Battle: Kalshi Fights on Multiple Fronts

The world of prediction markets in the US is in turmoil. Legal battles, regulatory scrutiny, and the ongoing debate about the nature of these markets shape the landscape. Kalshi, a prominent provider, is often at the center, facing multiple lawsuits and injunctions.

In Michigan, Judge Rosemarie Aquilina extended a temporary restraining order against Kalshi's sports contracts. She rejected Kalshi's preemption arguments, stating that the company was not dealing in commodities but in “gambling, which has traditionally been denied by the states.” The court also imposed an August 12 deadline for Kalshi to geofence the state or face fines of $500,000 per day.

Numbers and facts

Kalshi has asked for an injunction pending appeal in New York after an earlier request for a preliminary injunction was denied. The company argues that the decision threatens its business and conflicts with other courts that have found the Commodity Exchange Act preempts state gambling laws. New York has agreed not to bring an enforcement action against Kalshi through July 30. The following day, Judge Analisa Torres ordered state officials to file an opposition letter by July 22, with a decision on the emergency request expected shortly afterward.

In Washington, Kalshi and the state jointly asked the Ninth Circuit to pause briefing in the company's appeal over Washington's gambling enforcement action. This is pending the Ninth Circuit's decisions in the consolidated Nevada appeals. Those cases are expected to address the core question underlying nearly every prediction market lawsuit: whether federal commodities law preempts state gambling laws when applied to CFTC-regulated event contracts. Arizona previously filed a similar pause request.

The American Gaming Association (AGA) moved to intervene in the federal lawsuit brought by the CFTC against Wisconsin officials. The trade association argues that the case could significantly affect state gaming regulation and the authority of licensed sportsbooks. Wisconsin does not oppose the intervention, but federal regulators do. A federal judge in Nevada, Andrew Gordon, is inclined to reverse his April order that shielded Kalshi from state gambling enforcement. This judge granted Kalshi a preliminary injunction against Nevada's enforcement of gambling laws in April. Gordon reserved judgment after a hearing and expects to issue a written ruling within two weeks.

“It seems like your definition is so broad that pretty much anything can become a swap, anything can have a financial consequence. Nobody thought sports bets were commodities or excluded commodities or swaps until some brilliant people at Kalshi.” - Judge Andrew Gordon, US District Court of Nevada

The CFTC used its emergency authority for the first time in the Michigan dispute. It blocked Kalshi's proposal to unwind certain Michigan trades after the court order. Instead, the regulator ordered the exchange to honor those positions. The CFTC stated that allowing exchanges to cancel trades based on a customer's location could undermine market integrity and create uncertainty for market participants. The Michigan order marks the first time a state court has sought to unwind already executed prediction market trades.

Background

Beyond these legal battles, the market continues to expand. Water Street Labs became the newest designated contract market (DCM) through CFTC approval. This approval means another federally regulated exchange is available for listing futures and swap products. Meanwhile, Intercontinental Exchange (ICE) certified a new suite of economic indicator futures contracts tied to major macroeconomic data releases. Kalshi itself introduced Kalshi Pro, a new interface designed for active traders. The exchange also expanded its offerings to include contracts tied to minor league baseball and drug trial results.

Congress is also keeping a close eye on prediction markets. A bipartisan bill, backed by Kalshi, would require online sportsbooks and prediction markets to use facial recognition technology to estimate users' ages. Another proposed bill, the “Prediction Markets Are Gambling Act,” aims to ban contracts on sports, war, and elections at the federal level. This was introduced by Senator Adam Schiff (D-California) and Senator John Curtis (R-Utah). It would amend the Commodity Exchange Act to prohibit the listing of sports and “casino-style” event contracts.

“Rather than enforce the law, the CFTC is greenlighting these markets and even promoting their growth. It’s time for Congress to step in and eliminate this backdoor which violates state consumer protections, intrudes upon tribal sovereignty and offers no public revenue.” - Senator Adam Schiff, California

Geographic restrictions are also expanding in North America. Polymarket blocked access in several Canadian provinces this week, including Alberta, which launched its iGaming market. Google expanded its ban on prediction market advertising to Michigan and New York. This means operators can no longer advertise prediction market contracts in those states, which now join Nevada and Ohio on Google's restricted list. Donald Trump, former US President, spoke positively about the accuracy of prediction markets compared to traditional polls, which he dubbed “fake polls.”

Why it matters for German players

For German players, these developments in the US do not directly impact online gambling providers licensed in Germany. The German market is strictly regulated by the German Interstate Treaty on Gambling 2021 (GlüStV 2021). The Joint Gambling Authority of the Federal States (GGL) licenses and supervises legal providers. This treaty sets clear rules for player protection, including stake limits of 1 Euro per spin on slot machines and a monthly deposit limit of 1,000 Euro across all providers. Compliance with these limits is ensured by the central monitoring system LUGAS, which registers all player accounts and transactions to detect problematic gambling behavior early. Prediction markets, as discussed in the US, do not fall under traditional German gambling regulation and are not licensed as gambling products in Germany. German players should exclusively adhere to the GGL white list to play safely and legally and benefit from the strict German player protection. Providers without a German license do not offer this security, and players cannot file complaints with the GGL.

What it means for GGL-licensed casinos

The current disputes surrounding prediction markets in the US demonstrate the complexity of regulatory classification for gambling products. For GGL-licensed casinos in Germany, these developments do not mean any changes, as the German legislature has drawn clear lines. The focus here is on slot machines, sports betting, and online poker, all of which are subject to specific requirements. However, the legislature will closely observe how other markets develop. Particularly with new forms of products, debates about their classification could also arise in Germany. For GGL casinos, compliance with the GlüStV 2021 remains the top priority to retain their license and maintain player trust.