Nevada sues Kalshi as federal regulators say back off

• Nevada regulators sued Kalshi, saying its markets are actually illegal sports gambling.
• The suit was filed just as the Trump administration sided with prediction markets.
• Other states have also sued Kalshi, and many legal observers expect the Supreme Court to weigh in.

Nevada gambling regulators sued the prediction markets company Kalshi on Tuesday, saying the platform's rapid growth forced their hand.

The Nevada Gaming Control Board and the state attorney general sued in Carson City District Court shortly after a federal appeals court rejected a request by Kalshi to stop the state from taking action. The state is seeking an order to stop Kalshi, the country's largest prediction market, from operating what it sees as an unlicensed sports betting operation.

"Kalshi has continued to dramatically expand its business, rather than attempting to maintain any kind of status quo," Nevada authorities said in a letter earlier this month.

The regulators emphasized that Kalshi has grown rapidly, doing 27 times as much business on Super Bowl Sunday this year compared to the year before. Meanwhile, regulated Nevada gambling operations saw their business shrink, the state said.

A Kalshi spokesperson declined to comment on Tuesday afternoon, but the company swiftly asked a federal court to take over the new state case. They argued that only federal law applies to prediction markets, and that the new state enforcement action turns on the same questions that federal courts are already considering.

Kalshi has said that its markets are "event contracts," a financial instrument regulated by the Commodities Futures Trading Commission. The CFTC on Tuesday sided with another events-contracts company that is fighting with Nevada regulators, and its chairman, Michael Selig, filmed a video statement defending the new platforms.

"Today, the CFTC is taking an important step to ensure that these markets have a place here in America," Selig said. "To those who seek to challenge our authority in this space, let me be clear: we will see you in court."

Economists and political scientists have long been fascinated by prediction markets as a way to channel the so-called wisdom of the crowds. They were generally a niche activity until the 2024 US presidential election, when people wagered millions of dollars on sites like Polymarket.

Since the election, sports and cryptocurrency speculation have become the dominant markets. Today, more than 90% of the money that flows through Kalshi's platform is staked on sports-related events, and the growth of platforms like Kalshi has spurred traditional sportsbooks like FanDuel and DraftKings to create their prediction markets to take advantage of the light-touch regulation and lower taxes they offer.

Legal battles are pending on the East Coast as well, with regulators in Maryland and New Jersey having clashed with prediction markets. Attorneys and other industry commentators have said they expect the Supreme Court to eventually weigh in on the legality of sports contracts on prediction markets.