Kalshi’s legal battle with Massachusetts has evolved into a major test of who gets to regulate prediction markets in the United States. A bipartisan coalition of 38 state attorneys general filed an amicus brief supporting Massachusetts, arguing that Kalshi’s sports-related event contracts function as unlicensed sports betting and should therefore be subject to state gambling laws rather than escaping oversight through a federal derivatives framework.
States argue Kalshi is offering unlicensed sports betting
The dispute centers on whether Kalshi’s contracts are lawful financial products or, in practice, wagers on the outcomes of sporting events. Massachusetts sued the platform in September 2025, alleging that it enabled sports betting activity without the licenses normally required under state law. The attorneys general backing the case say that simply labeling a product as an “event contract” does not remove its gambling-like characteristics when users are effectively staking money on game outcomes.
In the brief, the states stress that gambling regulation has historically been a state function. They argue that if Congress intended to displace that authority, it would have needed to do so clearly and explicitly. Their position is that no such clear transfer of power exists here, and that the long-standing state role in licensing, consumer protection, and harm mitigation remains intact.
New York Attorney General Letitia James, one of the officials supporting the filing, said prediction markets cannot disregard state gambling laws that were designed to protect consumers. She also argued that Kalshi’s sports event contracts are simply illegal gambling under another name and should be governed by the same rules that apply to licensed betting operators.
Kalshi and the CFTC push the federal preemption argument
Kalshi has defended its business by saying its offerings are financial instruments—specifically swaps or derivative-style contracts—falling under the authority of the Commodity Futures Trading Commission. Under that reading, federal law would preempt conflicting state action, limiting the ability of states to block or penalize the platform for offering these markets.
The states reject that interpretation. They argue that the Dodd-Frank Wall Street Reform and Consumer Protection Act was designed to regulate financial instruments in the wake of the 2008 financial crisis, not to authorize a nationwide pathway for sports wagering. According to the attorneys general, the statute does not expressly mention gambling and should not be read as stripping states of their traditional enforcement powers.
The conflict sharpened further when the CFTC filed its own amicus brief on April 24, asserting that it has exclusive jurisdiction over prediction markets. CFTC Chairman Michael S. Selig said Congress entrusted the agency with sole authority over commodity derivatives markets, including prediction markets. That filing puts the federal regulator directly at odds with the position taken by a broad bloc of state law enforcement officials.
A case that could redefine regulatory boundaries
The coalition supporting Massachusetts includes 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.
In their filing, the states argue they are best positioned to manage the real-world consequences of gambling, including consumer protection, limiting youth exposure, and addressing gambling-related harms. They also note the historical context: when Dodd-Frank was passed, states were still barred under federal law from legalizing sports betting, a restriction that remained in place until 2018. In their view, it would make little sense to interpret a financial reform law from that period as silently authorizing sports betting products nationwide.
The brief also highlights the scale of activity on Kalshi’s platform. According to the states, users wagered more than $1 billion per month in 2025, with roughly 90% of that volume tied to sports betting. Those figures are central to the states’ argument that the platform is not merely hosting niche forecasting tools but operating at a scale comparable to major betting activity, making licensing and oversight concerns more urgent.
The attorneys general have urged the Massachusetts court to uphold a lower-court ruling that blocks Kalshi from allowing Massachusetts residents to participate in sports-related betting while the case is pending, unless the company obtains the required state license.
Why the outcome matters for crypto-adjacent markets
Although the case is framed around sports event contracts and state gambling laws, the broader implications extend into the wider digital-asset and online trading landscape. Prediction markets have increasingly been discussed alongside crypto, decentralized finance, and internet-native financial products because they sit at the intersection of trading infrastructure, retail speculation, and regulatory classification. A ruling that strongly favors state gambling authority could complicate efforts by platforms to position such contracts as purely financial instruments. A ruling favoring federal preemption could do the opposite, giving prediction markets a clearer route to operate across state lines under a national regulatory umbrella.
For now, the Massachusetts litigation has become a focal point in a larger national struggle: whether event-based markets tied to sports and public outcomes should be treated primarily as gambling products or as federally regulated derivatives. With 38 attorneys general lining up against Kalshi and the CFTC taking the opposite side on jurisdiction, the case may become one of the most consequential legal tests yet for the future structure of prediction market regulation in the U.S.
The court’s eventual decision could help determine not just Kalshi’s operating model, but the balance of power between state gambling enforcement and federal derivatives oversight for years to come.