States and the CFTC Battle Over Prediction Markets

Prediction markets like Kalshi now face court fights on two fronts at once. States and tribes have won orders that make Kalshi block users by location, and on November 5, 2026 the CFTC, the federal regulator that licenses these exchanges, told them to drop domestic geographic restrictions within 30 days.

Those two instructions cannot both be followed in full. To see why, it helps to start with what a prediction market sells, why states call it gambling and the legal question every case turns on, and then to map where each fight stands in the appeals courts, in the criminal charges in Utah and on tribal land in California.

What a Prediction Market Actually Sells

A prediction market lists event contracts, which pay out if something happens and pay nothing if it doesn’t. Kalshi runs one as a designated contract market, or DCM, the same federal license a futures exchange holds, so the CFTC oversees it rather than a state gaming board. Its contracts cover elections, reality competition shows and even measles case counts, but sports are what started the fight.

States look at a contract on an NFL game and see a sportsbook without a license. The Ninth Circuit put it bluntly in its Nevada ruling: “placing sports bets, even when called by another name, is still gambling.” Washington’s attorney general made the same point with his state’s own definition of gambling, “staking or risking something of value upon the outcome of a contest of chance or a future contingent event.”

Why Sports Changed Everything

New York says the turn came when Kalshi launched sports “trading” in 2025 and marketed it as legal sports betting in all 50 states. A licensed sportsbook pays state taxes, checks ages and answers to a state regulator. A sports contract on a federal exchange answers to the CFTC instead, and that gap is what every state case is about.

The Legal Hinge: Swaps, Preemption and IGRA

Kalshi’s defense rests on one word. Under the Commodity Exchange Act, the CFTC has exclusive jurisdiction over swaps, and the act defines a swap broadly as a contract that depends on an event “associated with a potential financial, economic, or commercial consequence.” If a sports contract is a swap, Kalshi argues, federal law preempts state gambling law and the states can’t touch it.

The states answer that Congress never meant a Wall Street reform law to swallow sports betting, and two appeals courts now agree with them. The Sixth Circuit held that Kalshi’s sports contracts aren’t swaps, and that even if they were, the act “neither expressly nor impliedly preempts” Ohio’s or Tennessee’s gambling laws.

The Tribal Route

Tribes use a different federal law. The Indian Gaming Regulatory Act, or IGRA, gives tribes the exclusive right to regulate gaming on Indian lands where the state allows gaming. Their argument is that a Kalshi trade placed by someone standing on tribal land is unauthorized Class III gaming on that land, whatever the exchange calls it.

The Appeals Courts Are Split

The federal appeals courts don’t agree. The Third Circuit sided with Kalshi against New Jersey on April 6, 2026, with a majority holding that its sports contracts are swaps and that the act preempts the state’s sports wagering laws. Judge Roth dissented.

Two circuits have since gone the other way. The Ninth Circuit ruled for Nevada on August 28, 2026 and refused to rehear the case on November 4, and the Sixth Circuit’s September 25 opinion affirmed the denial of an injunction in Ohio and vacated one Kalshi had won in Tennessee. On November 3 a Second Circuit panel denied Kalshi and Coinbase injunctions pending appeal in New York and Connecticut, saying they “have failed to make the required showing.” That left the states free to act while the appeals court losses work their way up.

The Supreme Court Waits

New Jersey has asked the US Supreme Court to settle it. Its petition, docket No. 26-299, was filed on September 2, and Kalshi’s response was due on November 9 until the court granted a second extension on October 30. The Supreme Court docket now gives Kalshi until December 7, and the National Football League, the American Gaming Association and 145 tribes are among the groups that have filed briefs in the case.

The district courts haven’t settled into line either. In Illinois, Judge Martha M. Pacold granted Kalshi, Coinbase and the CFTC a preliminary injunction against the state on October 2, while a federal judge in neighboring Wisconsin let that state keep treating sports contracts as gambling. The Fourth Circuit’s Maryland appeal is still pending.

The State Front, Case by Case

Away from the appeals courts, states have used every tool they have. In Nevada, a state court barred Kalshi’s sports, election and entertainment contracts on May 18, and after investigators placed trades anyway, Kalshi agreed to a GeoComply geofence by August 12 or to pay $120,000 for each extra day it ran late. A Michigan judge ordered Kalshi to keep a geofence covering anyone in the state, with violations risking a fine of $500,000 a day.

Washington won a preliminary injunction in King County Superior Court in July 2026. Massachusetts won one in Suffolk County in January 2026, but an appeals judge put it on hold, and the Supreme Judicial Court heard Kalshi’s appeal on May 4. New York’s attorney general sued Kalshi on July 31 for running an “illegal, unlicensed gambling operation.”

Ohio Goes After the Brokers

Ohio took a different path after its Sixth Circuit win. On October 2 the Ohio Casino Control Commission sent cease and desist letters to 10 prediction markets and brokers, and by November 6 it said MooMoo Financial, Robinhood, Gemini and Plus500US were complying and Coinbase had agreed to stop offering sports contracts in Ohio on November 13. Polymarket and Underdog are suing the commission instead.

Arkansas is the newest front. Attorney General Tim Griffin sued KalshiEX and Kalshi Inc. on November 4 under the state’s consumer protection law, saying Kalshi took customers “as young as 18 years old” and that “Arkansas law is concerned with substance, not semantics.” It’s one of several states suing Kalshi and sweepstakes casinos on the same theory.

Criminal Charges in Utah and Arizona

Two states have gone past civil suits. Utah filed 14 criminal counts on October 28 against KalshiEX, chief executive Tarek Mansour and chief operating officer Luana Lopes Lara, built on bets an investigator placed from an undercover account. Kalshi has been summoned to “personally appear” in Salt Lake City’s Third District Court on December 4 at 8:30 a.m. for its initial appearance and arraignment.

Arizona got there first, with 20 criminal charges filed in March, 16 of them sports related and four on election contracts. The prosecution stalled in federal court, where US District Judge Michael Liburdi granted the CFTC a temporary restraining order on April 10 and a preliminary injunction against enforcing Arizona’s gambling laws followed on May 5. The state’s appeal, No. 26-2978, sits in the Ninth Circuit, the same court that has now ruled twice against Kalshi.

The Federal Government Picks Sides

The federal government is now a party to these fights. The CFTC sued Utah on October 27 “to block the state’s efforts to shut down CFTC-registered contract markets using state laws,” and said it had started legal proceedings against nine other states. Arizona was one of them.

Tribal Land Becomes Its Own Map

The narrowest order may matter most for how geofencing works. On November 4, US District Judge Jacqueline Scott Corley in the Northern District of California barred Kalshi Inc. and KalshiEX from offering sports contracts on the lands of Blue Lake Rancheria and the Chicken Ranch Rancheria of Me-Wuk Indians. It is not a statewide ban, and the tribes must hand Kalshi maps of their lands by November 13.

The order follows the Ninth Circuit’s September 16 ruling that the tribes are likely to win their IGRA claim, because a customer buying a contract while on tribal land is gaming there. Corley had first denied the tribes an injunction. Her new order covers contracts that “facially involve, relate to, or reference” sports ranging from baseball and pickleball to chess, esports and UFC.

The CFTC Says Stop Geofencing

The CFTC’s answer arrived the same week. Its November 5 interpretation of the impartial access rule says designated contract markets must “cease domestic geographic restrictions” within 30 days, which runs to December 5, “or else submit to the Division of Market Oversight” an explanation of why compliance isn’t feasible. Exchanges also have to make sure the brokers that reach their markets aren’t impeding access.

“Geographic access restrictions are inconsistent with those purposes and the Act’s impartial access requirements,” Chairman Michael S. Selig said in the CFTC release. He added that derivatives markets “must operate on a uniform basis at a national scale.”

Where That Leaves Kalshi

This is our reading of the two sets of orders, not a ruling from any court. An exchange that keeps its Nevada geofence to obey a state judge is doing exactly what the CFTC now calls a problem, and the escape hatch the CFTC offers is the written explanation. The broker rule cuts the same way in Ohio, where Robinhood and Gemini stopped offering sports contracts to satisfy the state and Coinbase agreed to follow.

The CFTC is also trying to settle the swap question by rule. Its proposal to define event contracts tied to sports, politics, culture and weather as swaps was announced on October 9 and published in the Federal Register on October 19, and comments close on November 18.

The Dates That Decide It

The next four weeks are crowded. The tribes’ maps are due on November 13, comments on the swap rule close on November 18, Kalshi is due in a Utah courtroom on December 4 and the CFTC’s 30 days run out on December 5.

The Bigger Clock

Kalshi’s response to New Jersey is due December 7, and it has until February to ask the Supreme Court to review the Nevada ruling. Until the justices take a case, the answer to whether a sports contract is a swap or a bet depends on where you stand, and the state-by-state legal picture is still the map that decides it.