Kalshi Loses Twice in Utah and Iowa Federal Courts

Kalshi lost two federal court fights on September 8, and both leave states free to treat its sports contracts as gambling. A two-judge panel of the 10th U.S. Circuit Court of Appeals refused Kalshi’s emergency request to block Utah’s gambling laws while it appeals, and in Des Moines, U.S. District Judge Stephen Locher denied its bid for a preliminary injunction against Iowa.

Neither ruling decides the core question of whether federal commodities law overrides state gambling law. Both, though, strip away protection Kalshi wanted while the arguments continue.

Utah Can Enforce While the Appeal Runs

Kalshi sued Utah officials after the state threatened to enforce its gambling laws against the company. Judge Robert J. Shelby denied Kalshi’s request for a preliminary injunction a little more than a month before this week’s order, and granted Utah summary judgment. Kalshi appealed to the Denver-based 10th Circuit and asked for an injunction pending appeal.

The panel said no in a brief order, ruling that Kalshi hadn’t met the legal standard. It didn’t touch the central preemption question, which is still before the court, and it gave no date for a decision.

Why Utah Matters

Utah is about as hostile a place as Kalshi could pick. It has no commercial casinos and no legal sports betting, and its rules prohibit proposition betting on events inside a game, which covers a big share of the sports products prediction markets sell.

Kalshi’s argument is that it runs a designated contract market regulated by the CFTC, the federal derivatives regulator, and that the Commodity Exchange Act gives that agency exclusive authority. Utah’s lawyers say Kalshi is using federal commodities regulation as cover to sidestep a gambling ban the state has long enforced.

Iowa’s Judge Quotes Kalshi’s Own Ad Back at It

The Iowa case is odder, because Iowa hadn’t acted yet. Kalshi filed a pre-enforcement suit in March after a March 4 meeting with Attorney General Brenna Bird, which its lawyers said turned “like a deposition.” When Kalshi asked for assurances, a representative wrote back: “we will not give any assurances about potential future enforcement.”

Locher found Kalshi unlikely to win on the merits. If Congress meant to preempt state gambling laws through the Commodity Exchange Act, he wrote, it should have been clear about it, and the statute’s text “does not meet the mark.” He also questioned whether a football result counts as an “event” in the sense the law uses. “In general parlance, one would not describe, say, the Minnesota Vikings winning a football game as an ‘occurrence’ or ‘event,’” he wrote.

A Problem of the Company’s Own Making

The sharpest part of the ruling is about Kalshi’s marketing. Locher noted the company once advertised itself as “the first app for legal sports betting in all 50 states,” and said it should have known state regulators might call its contracts gambling.

“To the extent it would be expensive in these circumstances for Kalshi to deploy new technology or change aspects of its business to ensure compliance with Iowa law, this is a problem of the company’s own making. It should have proceeded with greater caution,” he wrote. Following each state’s rules “may be inconvenient for Kalshi, but it is not impossible.”

Bird welcomed it. “This ruling is a victory for the rule of law and for protecting Iowans,” she said, adding that “out-of-state betting platforms cannot simply invent a loophole to ignore state law.” The ruling leaves Kalshi open to gambling enforcement in Iowa.

The Appeals Courts Can’t Agree

This is where the week’s losses get their weight. In April, the Third Circuit sided with Kalshi against New Jersey, holding in KalshiEx v. Flaherty that sports event contracts are swaps and that federal law preempts the state. Judge David Porter wrote for the majority, joined by Chief Judge Michael Chagares, while Judge Jane Richards Roth dissented.

On August 28, the Ninth Circuit went the other way in KalshiEx v. Assad, the case behind Nevada’s long fight with prediction markets, ruling that sports contracts are not swaps and that state gambling regulators keep their authority. New Jersey then asked the Supreme Court to review the Third Circuit’s decision on September 2.

The Sixth Circuit and the CFTC Are Next

The Sixth Circuit heard oral argument on July 30 in Kalshi’s consolidated appeal from cases in Ohio and Tennessee. The CFTC isn’t waiting on the courts either. Its June 10 proposed rule would treat contracts on final scores and season stats as likely acceptable, while flagging contracts on injuries, officiating decisions and discrete in-game actions as likely against the public interest.

That puts the federal regulator’s own draft close to the in-game ground Utah already bans. It’s a long way from one national answer.

One federal appeals court has sided with Kalshi and another has ruled against it. New Jersey’s petition now asks the Supreme Court to pick between them.