Prediction Markets See Gains and Losses in US Legal Battles

^{Connecticut Attorney General William Tong represents one of the states that has sent cease-and-desist letters to prediction markets, including Kalshi. (Photo: Operation 2023 / Alamy)}

Over the past week, prediction market platforms like Kalshi and Polymarket have seen movement on several different legal fronts, with both wins and losses coming at different levels of the court system.

From restraining orders to appellate court rulings, and with new players jumping in on both sides of the controversy, the battle lines are being drawn over what looks to be the biggest issue in the gaming industry this year.

Appeals Court Rules in Favor of Kalshi

On April 6, the 3rd Circuit Court of Appeals ruled that New Jersey gambling regulators can’t prevent prediction markets from taking contracts on sporting events. In the 2-1 ruling, the justices found that platforms like Kalshi are correct in arguing that the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction to regulate prediction markets at the federal level, superseding state regulations. 

“Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed [Designated Contract Market], so the CFTC has exclusive jurisdiction,” US Circuit Judge David Porter wrote in the decision.

The case originated when former New Jersey Attorney General Matt Platkin sent a cease-and-desist letter to Kalshi in June 2025, seeking to stop the site from accepting sports-related contracts. On Monday, current New Jersey Attorney General Jennifer Davenport argued that the court got it wrong, though she didn’t say whether the state plans to take the case to the Supreme Court.

“States like New Jersey have always had the power to oversee all gaming in their states, and subject gaming to important safety measures, including to guard against gambling addiction and to avoid insider trading,” Davenport said in a statement.

Nevada Judge Extends Restraining Order Against Kalshi

But it hasn’t been all good news for Kalshi in court. On April 3, Nevada Judge Jason Woodbury extended a ban on Kalshi offering event contracts in the state, taking an initial 14-day temporary restraining order that was issued on March 20 and pushing it out to April 17.

Woodbury also said he would issue a temporary restraining order against Kalshi, with a new deadline to finalize the terms of that injunction, which would extend for a longer period.

In his ruling, Woodbury said that he saw no difference between placing a bet on a baseball game at a state-licensed sportsbook or doing so by buying event contracts on Kalshi, with similar payouts available either way.

“No matter how you slice it, that conduct is indistinguishable,” Woodbury said. “So I find based on the arguments that have been presented that it is a gaming activity that is prohibited for any non-licensee to engage in.”

Federal Government Sues Three States to Prevent Further Bans

Prediction markets do, however, have a powerful ally in this legal fight: the Trump administration. The federal government sued Arizona, Connecticut, and Illinois on April 2 to stop those states from attempting to regulate prediction markets.

The government argued that efforts to stop Kalshi, Polymarket, and other prediction markets violated the CFTC’s exclusive authority over financial swaps. Notably, while other states have also signaled they want to regulate these prediction markets, the lawsuit targeted only the governors and attorneys general of three Democratic-led states.

“[The CFTC] will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators,” CFTC Chairman Michael Selig said in a statement.

While states like Connecticut and Illinois have sent cease-and-desist letters, Arizona went further, issuing criminal charges against Kalshi. Officials from these states argued that their state laws require prediction markets to comply with regulations that these companies are ignoring.

“The Trump Administration is recycling industry arguments that have been rejected in district courts across the country,” Connecticut Attorney General William Tong said in a statement. “We will aggressively defend Connecticut’s commonsense consumer protection laws.”

Along with state governments, tribal gaming interests across the country have marked Kalshi and its brethren as a threat to their business, which was made clear at the Indian Gaming Association’s annual convention in San Diego last week, where prediction markets were the hot topic.

“This is bigger than Indian gaming,” IGA Chairman David Z. Bean said at the end of the opening day of the conference. “This is about protecting the integrity of our industry, protecting tribal sovereignty, and protecting state sovereignty. What we are seeing right now impacts all of us.”