A federal judge has ruled that Kalshi’s sports-event contracts fall under Connecticut gambling laws rather than federal derivatives regulation, dealing a setback to the prediction market platform.
The U.S. District Court for the District of Connecticut denied Kalshi’s request for a preliminary injunction, allowing the state to enforce its gambling laws. Judge Vernon D. Oliver found that Kalshi’s sports contracts do not meet the statutory definition of a “swap” under the Commodity Exchange Act.
“Kalshi’s sports-event contracts fail to satisfy this portion of the statutory definition of a swap because they do not depend on whether an underlying sporting event occurs, fails to occur, or occurs to a particular extent. Instead, Kalshi’s sports-event contracts depend on the event’s outcomes or discrete in-game occurrences,” Oliver wrote.
Oliver also noted that Kalshi has marketed its platform as offering “legal sports betting nationwide”, despite sports wagering traditionally being regulated by individual states. The court declined to find that Congress displaced Connecticut’s authority or that the contracts fall exclusively within Commodity Futures Trading Commission jurisdiction.
Kalshi told Sports Betting Dime that it “disagrees with the Court’s decision.” The company has appealed to the Second Circuit U.S. Court of Appeals.
Connecticut dispute adds another appeal to Kalshi’s legal battles
The case began after Connecticut’s Department of Consumer Protection issued cease-and-desist notices to Kalshi, Robinhood and Crypto.com on 2 December, alleging unlicensed sports wagering.
Kalshi filed suit the following day, arguing that state enforcement interfered with the federal regulatory framework governing derivatives exchanges. U.S. gaming attorney Daniel Wallach said Kalshi is involved in two appeals before the Second Circuit, which could be combined for oral argument.
The Connecticut ruling conflicts with an earlier Third Circuit decision supporting Kalshi and qualifying its sports contracts as swaps under the Commodity Exchange Act. This divergence has increased uncertainty over whether federally regulated prediction markets can offer sports contracts without complying with state betting laws.
Court split increases pressure on prediction market regulation
The dispute comes as prediction market activity grows rapidly. Global trading volume increased from $15.8 billion in 2024 to $63.5 billion in 2025 before reaching $75 billion in the first quarter of 2026.
At least 34 states and territories have filed briefs supporting state authority over sports-related prediction contracts. Supporters of state control argue that treating these products as federal derivatives could allow platforms to bypass licensing, consumer protections, and taxation applied to sportsbooks.
The conflicting federal rulings could increase the likelihood of eventual U.S. Supreme Court review. The UK and Canada already treat similar sports-event products as gambling rather than derivatives.
Meanwhile, there are new hedge funds, exchanges and fintech companies entering the prediction markets to leverage their information markets and hedging products. The Connecticut decision adds a legal obstacle for Kalshi as courts decide the fine line between financial innovation and state gambling regulation.
Kalshi’s legal problem is becoming less about innovation and more about who will regulate prediction markets and sports contracts. If different federal courts keep reaching different conclusions, the industry may need a Supreme Court ruling or stricter legislation before the uncertainty settles.
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