A major legal battle over the future of prediction markets in the United States is intensifying as a bipartisan coalition of 38 state attorneys general has filed an amicus brief supporting Massachusetts in its lawsuit against Kalshi. At the core of the dispute is whether Kalshi’s sports-related event contracts should be treated as federally regulated financial instruments or as gambling products that must comply with state licensing laws.
The brief, submitted to the Supreme Judicial Court of Massachusetts, argues that Kalshi is effectively offering sports betting without the licenses required under state law. State officials contend that simply labeling the products as “event contracts” does not remove them from the long-established framework of state gambling regulation. If the court agrees, the decision could become a landmark precedent for how prediction markets are treated across the country.
States argue Kalshi is offering unlicensed sports betting
Massachusetts first sued Kalshi in September 2025, alleging that the platform was facilitating unlawful sports betting activity. According to the states backing the case, users are able to wager on the outcomes of sports events through contracts that function in practice like bets, while Kalshi has not obtained the state gaming licenses that traditional sportsbooks are required to hold.
New York Attorney General Letitia James, one of the most prominent voices supporting the lawsuit, said that prediction markets cannot disregard state gambling laws designed to protect consumers. In a separate statement highlighted in the filing, she argued that Kalshi’s sports event contracts are illegal gambling under another name and should be subject to the same rules as every other licensed gambling platform.
The attorneys general say this is not just a narrow dispute over legal definitions. In their view, it is a challenge to the basic principle that states have historically controlled gambling regulation within their own borders. They argue that any attempt to displace that authority would require a clear directive from Congress, not a broad reinterpretation of federal commodities law.
Kalshi points to CFTC oversight and federal law
Kalshi has defended its business by arguing that its products are financial instruments, specifically swaps or derivatives, that fall under the authority of the Commodity Futures Trading Commission (CFTC). From that perspective, the platform’s event contracts are part of a federally regulated market structure and should not be blocked by individual states applying gambling laws.
This position is not being advanced by Kalshi alone. On April 24, the CFTC filed its own amicus brief asserting that it holds exclusive jurisdiction over prediction markets. CFTC Chairman Michael S. Selig said Congress had entrusted the agency with sole authority over commodity derivatives markets, including prediction markets, and the agency argued that federal law preempts conflicting state regulation.
That intervention raises the stakes substantially. What began as a state enforcement action against one company has now become a broader constitutional and regulatory clash over federal preemption, administrative authority, and the limits of state power in markets that resemble both finance and gambling.
The states reject the financial-instrument framing
The coalition of attorneys general strongly disputes the idea that Dodd-Frank gives Kalshi a path around state gambling rules. Their brief argues that the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in response to the 2008 financial crisis and was designed to regulate financial instruments linked to systemic market risk. In their reading, the statute was never intended to create a nationwide opening for sports gambling through derivative-style contracts.
The states also emphasize that the law does not expressly mention gambling and does not clearly strip states of their traditional enforcement role. At the time Dodd-Frank was passed, states were still barred under federal law from legalizing sports betting, a restriction that remained in place until 2018. That historical context, they argue, undermines any claim that Congress meant to federalize sports wagering regulation through commodities law.
From the states’ perspective, the practical realities matter just as much as statutory interpretation. They say consumer harms associated with gambling—including addiction risks, fraud concerns, and youth exposure—have long been addressed through state licensing, state enforcement, and state-specific compliance standards. Those protections, they argue, should not disappear simply because a platform presents betting activity in a different legal wrapper.
Scale of activity adds pressure to the case
One of the most striking figures in the filing is the scale of Kalshi’s sports-related activity. According to the attorneys general, users wagered more than $1 billion per month in 2025 on the platform, with about 90% of that volume tied to sports betting. Those numbers are central to the states’ argument that this is not a niche product or a technical compliance dispute, but a large and rapidly expanding market with significant real-world impact.
The coalition is asking the Massachusetts court to affirm a lower-court ruling that blocks Kalshi from allowing Massachusetts residents to place sports-related wagers while the litigation continues, unless the company secures the required license. That interim restriction is important because it speaks to how courts may treat prediction market operators while the broader legal questions remain unresolved.
The list of signatories reflects the breadth of state concern. Attorneys general from Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Iowa, Kansas, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New York, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, Wisconsin, and the District of Columbia joined the brief.
A case that could define the next phase of prediction markets
The Massachusetts case now stands as a pivotal test for the U.S. prediction market sector. If the court sides with the states, platforms offering sports-linked event contracts may face pressure to obtain state licenses or sharply revise their products. If the federal position prevails, however, operators may gain a stronger foundation to argue that their offerings belong within a single national regulatory framework overseen by the CFTC.
Either outcome would have consequences far beyond Kalshi. The ruling could influence how regulators classify event contracts, how platforms structure new products, and how investors and users assess the legal durability of prediction-market businesses. It may also shape future battles over whether contracts tied to elections, economics, sports, and other real-world events are primarily financial tools, gambling products, or something in between.
For now, the case highlights an increasingly visible tension in U.S. digital and financial markets: innovative platforms often move faster than the legal categories meant to govern them. In Kalshi’s case, the central question is no longer simply what the contracts are called, but which authority gets the final say over them. The answer could redraw the compliance map for the entire prediction market industry.