Prediction market platform Kalshi has faced its first major legal setback in its quest to offer nationwide sports event contracts, after a Maryland federal court sided with the state’s gambling regulators.
In a Memorandum Opinion signed by US District Court judge Adam B. Abelson, Kalshi was said to have failed to show “a likelihood of success on the merits of its claim” that the federal Commodity Exchange Act (CEA) pre-empts Maryland’s gaming laws.
As such, the court rejected Kalshi’s Motion for a preliminary injunction to prevent the Maryland Lottery and Gaming Control Agency and the Maryland Lottery and Gaming Control Commission from pursuing civil and criminal enforcement of state gaming laws against Kalshi.
This puts Maryland at odds with other states including Nevada and New Jersey, which have previously seen judges side with the prediction market over state bodies.
Maryland court emphasises state authority
Kalshi, which is registered with the Commodity Futures Trading Commission (CFTC), launched sports contracts earlier this year under a self-certification process permitted by the CEA.
These contracts allowed users to take “yes” or “no” positions on outcomes such as whether given teams would progress in the NCAA basketball tournament, or who would win the US Open Golf Championship.
While Kalshi, as well as other companies involved in the burgeoning space including Robinhood and Crypto.com, have highlighted their authorisation under federal law, critics argue sports-based event contracts are effectively unlicensed sports gaming.
Maryland regulators issued a cease-and-desist letter in April, warning that Kalshi’s products amounted to unlicensed sports wagering and violated state law, which requires sports betting operators to be licensed and comply with strict advertising, age verification, and data security standards.
Kalshi did not argue it was operating without a licence in Maryland, but instead claimed Maryland’s enforcement actions were invalid due to federal pre-emption by the CEA.
Judge Abelson disagreed: “It is well recognised that regulating gambling is at the core of the state’s residual powers as a sovereign in our constitutional scheme… The courts and Congress have long recognised states’ authority to regulate gambling conducted within their borders.
“Kalshi has not shown that when Congress enacted and amended the CEA it intended to preempt state gaming laws when sports wagers are made on a platform like Kalshi’s.”
The court also dismissed Kalshi’s argument that Maryland’s laws conflicted with the CEA’s structure or objectives.
Judge: Kalshi could simply get betting licence
Abelson added: “Kalshi could simply obtain a mobile sports wager licence in Maryland, while still being able to comply with federal regulatory requirements imposed by the CEA and CFTC. Kalshi has not shown how obtaining a licence in Maryland and otherwise complying with Maryland law would prevent it from complying with federal law.
“It is Kalshi’s desire not to comply with Maryland law and presumably incur some additional compliance costs — not the existence of Maryland consumer protection laws themselves — that creates the situation Kalshi professes to worry about.”
A coalition of tribal governments and Indian gaming associations filed an amicus brief in support of Maryland’s position last month.
Kalshi has appealed the ruling to the Fourth Circuit and has requested an injunction pending appeal, or alternatively a temporary order preserving the status quo while the appellate court considers its case.