Sports-events contracts are under fire from state enforcement and gaming authorities, with Kalshi testing the waters for federally regulated “event contracts” against states’ independent enforcement of sports wagering laws.
Jan 26, 2026
As Kalshi continues its rise in the prediction markets the hurdles keep coming. We previously wrote about how 2026 could be an even bigger year for Kalshi and prediction markets, but new developments surrounding prediction markets’ legality might be changing that. Sports-events contracts are under fire from state enforcement and gaming authorities, with Kalshi testing the waters for federally regulated “event contracts” against states’ independent enforcement of sports wagering laws. With the Massachusetts injunction, the Connecticut order, and other states citing these actions, Kalshi has a lot to take on.
This content is not legal or financial advice and is purely for informational purposes.
Massachusetts was able to receive a preliminary injunction prohibiting Kalshi from taking sports wagers/event contracts from Massachusetts until it complies with state licensing and gaming laws. Connecticut has issued cease and desist orders to Kalshi and other prediction markets for similar reasons of unlicensed gaming and lack of regulatory compliance.
These legal battles are now testing if Kalshi and other prediction markets are subject to federal regulations enforced by the CTCF or state level laws and authorities. For players, they now have to consider licensing, taxes, how integrity is maintained, and how consumer protection is enforced.
Kalshi and other prediction markets offer “sports event contracts”, which pay out based on a yes or no outcome, i.e. Will the New England Patriots beat the Seattle Seahawks at the 2026 Superbowl?”.
These contracts are based on trade positions instead of a typical sportsbet, like taking a Patriots (+190) or moneyline or Seahawks (-230) moneyline.
The similarity lies in that the odds are based on consumer behavior, specifically where the money is placed, but the legal framework is different. Prediction markets claim that they are regulated by the CTCF because they act as a venue for trading derivatives, whereas traditional sportsbetting is overseen by state gaming authorities.
This leads to the main issue at hand: Prediction markets are acting without being subject to consumer protection laws set by the states, which usually require things like licensed operations and mandatory age and geographical restrictions.
Last week, a Massachusetts judge ordered Kalshi to stop offering sportsbetting to customers in the US state, after the state’s attorney general was able to gain a preliminary injunction.
Attorney General Andrea Joy Campbell stated the injunction “...marks a major step toward fortifying Massachusetts' gambling laws and mitigating the significant public health consequences that come with unregulated gambling”
Thus Kalshi is forced to obtain a license and comply with state sports wagering laws. As of now they have not publicly made any moves towards doing so. This comes after Campbell issued cease and desist letters to two offshore online operators, BetOnline.ag and Sportsbetting.ag, for illegally offering gaming and wagering services without a license from the Massachusetts Gaming Commission.
Practically, it's a win for Massachusetts, since the injunction is treating event contracts trading as illegitimate sportsbetting. On the other hand, legal courts now have to consider how already open contracts are handled while these injunctions are in effect. Still, this is a major signal for other states who are looking for pathways into enforcement.
Connecticut has taken similar steps. Last year, the state’s Department of Consumer Protection Gaming Division sent cease and desist letters to three different prediction markets— Kalshi, Robinhood Derivatives, and Crypto.com— on the basis that they are offering sports wagers without licensing.
Commissioner Bryan T. Caffereli stated “None of these entities possess a license to offer wagering in our state, and even if they did, their contracts violate numerous other state laws and policies, including offering wagers to individuals under the age of 21”. He also goes on to say that these markets are “...posing a serious risk to consumers who may not realize wagers placed on these illegal platforms offer no protections for their money or information”
The Ohio Casino Control Commission has been following suit, as the OCCC sent cease and desist letters in April to the same prediction markets, using the same basis of violating laws. Kalshi responded by suing the OCCC and Ohio Attorney General’s office in October, arguing their CTCF license permits them to offer sports events contracts under the Commodities Exchange Act (CEA), making the need for a state gaming license unnecessary. Now the OCCC is citing the Massachusetts decision as “supplemental authority” to argue for its own preliminary injunction and against Kashi’s litigation.
In Tennessee, Kalshi is experiencing more wins. Despite a cease and desist letter from the Tennessee Sports Wagering Council, Kalshi was granted a temporary restraining order earlier this month, stopping the Council from enforcing the Tennessee Sports Gaming Act until the hearing for the preliminary injunction requested by Kalshi takes place, which is scheduled for today.
The different responses from the courts only illustrate what the iGaming field in the US has historically been: A patchwork of different approaches and rulings that make it hard for consumers and operators to navigate.
These letters and other legal actions taken by the states are indicative of a broader issue - the disconnect between states’ and federal agencies’ legal opinions. For the CTFC, and prediction markets, these wagers fall under the jurisdiction of federal derivatives regulation, which overrides state gambling laws. Specifically, these prediction markets continuously cite the CEA as their regulatory framework that is enforceable only by the CTCF. Even though states argue that the CEA and CTCF both limit sports event contracts, Kalshi has interpreted that the CTCF only has the power to ban them, not the obligation.
According to an advisory published by the CTCF, “...at least one federal district court has found that the Commodity Exchange Act (“CEA”) does not preempt
the application of State gambling, wagering, and gaming laws to sports-related event contracts listed and traded on a CFTC-registered trading venue.” Thus, the CTCF is aware of state gaming laws and has warned prediction markets about the potential legal issues that can and have arisen from state regulations, meaning federal oversight isn’t the blanket protection that markets assume it to be.
This footnote only exacerbates the state by state patchwork issue that is coalescing further. With legal courts not sharing an aligning stance on the issue, exemplified by Tennessee's ruling, more state by state rulings can affect how these prediction markets position themselves.
To be sure, this fight isn’t just between prediction markets and state attornies— it includes sportsbooks, consumer protection groups, and commercial/tribal casinos. Their main argument lies in compliance and consumer safeguards being worked around through sports event contracts classification as derivatives. One could also suggest that current operators don’t want any more competition than necessary, as FanDuel and other sportsbooks have begun to roll out their own platforms in response while attempting to maintain a share of the market. Unlicensed operators are facing legal action and now platforms like Kalshi are in regulators’ sites.
It's going to be up in the air for Kalshi and other platforms offering sports event contracts. Other states could follow Massachusetts' steps and push for injunctions, but that depends on how each court decides on preemption. There is also going to be the question of whether federal regulations will give clarity on the issue or if the state by state basis will dictate laws in the near future, which can affect how partnerships and marketing relationships will play out for these entities.
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