Ethics CasesSport

Cases · CFTC / state gaming regulators · 2020–2026

Sports Prediction Markets: Are Event Contracts Just Sports Betting?

In January 2025, Kalshi, a federally registered derivatives exchange, began offering "event contracts" on the outcomes of sporting events nationwide, including in states where sports betting is illegal or restricted to licensed sportsbooks. Sports quickly became most of its business. States sent cease-and-desist letters and sued, arguing that the contracts are unlicensed sports wagers; Kalshi argued that federal commodities law preempts state gambling law. By October 2026, federal appeals courts had split: the Third Circuit sided with Kalshi, while the Ninth and Sixth Circuits sided with Nevada, Ohio, and Tennessee. This dilemma-style case asks how to regulate betting that is relabeled as finance, and who protects consumers and athletes.

By Tanner Simkins, editor

Timeline

  1. The CFTC certifies Kalshi as a designated contract market able to list event contracts.
  2. Kalshi begins offering sports-event contracts nationwide; New Jersey and other states send cease-and-desist letters.
  3. Massachusetts' attorney general sues Kalshi for accepting unlicensed sports wagers.
  4. A Massachusetts court enjoins Kalshi from offering sports contracts in the state.
  5. Kalshi reports record trading volume around the Super Bowl.
  6. The Third Circuit holds that Kalshi is likely to succeed on federal preemption against New Jersey.
  7. The Ninth Circuit holds that Kalshi's sports contracts are not "swaps" and Nevada may apply its gaming laws.
  8. The Sixth Circuit rules for Ohio and Tennessee; Michigan obtains a preliminary injunction requiring geofencing.

The ethical issues

  • Substance vs. form: whether a contract that pays out on a game result is a financial derivative or a bet.
  • Federalism: whether federal commodities regulation overrides states' choices to ban or license sports betting.
  • Consumer protection: states' age limits, problem-gambling programs, and taxes vs. federal derivatives rules.
  • Integrity: contracts on college games and individual events in states that ban such betting.
  • Market design: "skin in the game" information value vs. the commodification of everything.

Stakeholders

StakeholderInterests & obligations
Kalshi and other prediction marketsNationwide market access under a single federal regulator.
State gaming regulators and attorneys generalTheir authority to license, tax, and restrict gambling within their borders.
Licensed sportsbooks and tribesCompetitive fairness; some states' tribal gaming compacts.
CFTCIts jurisdiction and capacity to oversee sports markets.
Leagues, the NCAA, and athletesIntegrity monitoring; harassment and manipulation risks.
ConsumersAccess and pricing vs. protections against addiction and underage gambling.

The case

After Murphy v. NCAA in 2018, sports betting in the United States became a state-by-state matter. Each state decides whether to allow it, who may offer it, how it is taxed, and what protections apply. By 2026, 39 states and the District of Columbia had legalized sports betting in some form.[9]

Kalshi found another route. In 2020 the Commodity Futures Trading Commission (CFTC), which regulates futures and swaps, certified Kalshi as a designated contract market: a federally regulated exchange where users trade “event contracts” that pay out depending on whether something happens.[1] After legal battles over election contracts, Kalshi began offering contracts on sporting events in January 2025, following a competitor’s lead. A user could buy a contract that pays $1 if a team wins, at a price reflecting the market’s estimate of the probability. Kalshi said that because the contracts traded on a federally regulated exchange, state gambling laws did not apply.[1][2]

Sports took over the business. By 2025, sports accounted for most of Kalshi’s activity and about 89 percent of its revenue, according to company figures reported in the press.[1] Kalshi recorded hundreds of millions of dollars in trading around the 2026 Super Bowl.[7]

Background

Financial analysts Tarek Mansour and Luana Lopes Lara founded Kalshi in San Francisco in 2018. In November 2020 it became the first CFTC-registered exchange to trade directly on the outcomes of events.[1] Mansour described the ambition this way: “The long-term vision is to financialize everything and create a tradeable asset out of any difference in opinion.”[1] In 2025, Kalshi became the infrastructure for Robinhood’s prediction markets hub, bringing event contracts to a mass retail audience.[1]

The company’s earlier fights were over elections. The CFTC rejected its congressional control contracts in September 2023. Its chairman, Rostin Behnam, warned that election contracts could “ultimately commoditize and degrade the integrity” of the electoral process.[1] After a 2024 ruling by the federal district court in Washington, D.C., that the CFTC had overstepped, Kalshi relaunched those contracts.[1]

The rules and governance

The legal fight is about who regulates. Kalshi argues that the Commodity Exchange Act gives the CFTC exclusive jurisdiction. States argue that a contract paying out on a game’s result is gambling under state law, whatever the venue.[2][3][4] Tribal gaming operators added another argument: that the sports contracts amount to Class III gaming under the Indian Gaming Regulatory Act, violating tribes’ exclusive right to regulate gaming on their lands.[1] Federal trial courts also split. In July 2026, a federal judge ruled against Minnesota, holding that “the CFTC has exclusive jurisdiction.”[1]

Enforcement continued while the cases moved up. On March 20, 2026, a Nevada state court issued a 14-day restraining order barring Kalshi from offering event contracts on sports, elections and entertainment without gaming licenses. On July 24, 2026, the Nevada Gaming Control Board announced an agreement with Kalshi to halt its operation in the state.[1] In April 2026, Wisconsin’s attorney general sued Kalshi, Coinbase, Polymarket and others, alleging they disguised sports bets as “event contracts.” The CFTC responded by suing Wisconsin and New York to assert its exclusive jurisdiction.[1]

The states push back

States saw an unlicensed sportsbook. New Jersey sent a cease-and-desist letter, noting among other things that its constitution bars betting on college sports, including New Jersey colleges’ games.[2] Nevada, Ohio, Tennessee, Maryland, Massachusetts, Michigan, and others took action, citing their licensing systems, age limits, taxes, and problem-gambling programs.[1][5] Kalshi sued several states in federal court, arguing that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over trading on federally registered exchanges.[2]

The courts divided. On April 6, 2026, a divided Third Circuit panel held that Kalshi was likely to win against New Jersey. It reasoned that the contracts fit the statutory definition of a “swap” and that federal law preempts state laws that directly interfere with trading on such exchanges.[2] On August 28, 2026, the Ninth Circuit reached the opposite conclusion in Nevada’s case, holding that the sports contracts were not swaps and noting that CFTC rules themselves bar exchanges from listing contracts involving gaming.[3] In September 2026, the Sixth Circuit sided with Ohio and Tennessee.[4] State courts in Massachusetts and Michigan issued injunctions requiring Kalshi to geofence residents out of its sports markets, with large daily fines for violations.[1][5]

Supporters of prediction markets argue that they are an innovation: transparent, exchange-based, nationally uniform, and often cheaper for users than sportsbooks’ built-in margins. Federal oversight, they say, is better than fifty state regimes.[6]

Critics say the label “event contract” is a technicality that lets a gambling product skip the protections states require: higher age limits in some states, responsible-gambling tools, funding for addiction treatment, and restrictions on bets involving college athletes.

Aftermath

The circuit split went to the Supreme Court. On September 2, 2026, New Jersey petitioned for review of the Third Circuit’s decision. Its question was whether the 2010 Dodd-Frank Act “preempted States from regulating sports bets that occur within their jurisdictions if those bets are offered on markets registered with the Commodity Futures Trading Commission.”[10] Kalshi’s response deadline was extended to November 9, 2026. By October 8, friend-of-the-court briefs had been filed by gaming regulators and legislators, the American Gaming Association, New Jersey’s casino association, 145 Indian tribes and tribal organizations, Ohio and 38 other states with the District of Columbia, an anti-gambling coalition, former Senator Christopher Dodd, former CFTC chairman Gary Gensler, and the National Football League.[8]

The NFL’s brief shows how the dispute looks from inside a league. It said that on the first Sunday of the 2026 season, $1.8 billion of the $3.3 billion traded on prediction markets related to NFL games. It also said that state-regulated sportsbooks offer protections such as bans on manipulable bets, official-data agreements and monitoring for insider trading. The league said that “despite the NFL’s urging,” the CFTC and operators like Kalshi “have thus far failed to implement appropriate safeguards to protect the integrity of sporting events and consumers.” It argued that the word “swap” in Dodd-Frank “does not naturally encompass” sports-related event contracts.[9] The petition remained pending as of mid-October 2026.[8]

The core dilemma

If a financial contract pays out on the result of a game, is it a bet? And if federal and state law answer that question differently, whose rules should govern, and who is responsible for protecting consumers and athletes?

Competing values

  • Innovation and uniformity vs. local democratic choice: one national market vs. states’ authority over gambling.
  • Consumer freedom vs. consumer protection: access and lower costs vs. safeguards against addiction and underage use.
  • Information value vs. commodification: markets as forecasting tools vs. turning games into financial instruments.
  • Integrity vs. reach: more monitored liquidity vs. betting on athletes in states that chose to forbid it.

Strongest arguments

For allowing sports-event contracts under federal oversight: Congress gave the CFTC authority over trading on registered exchanges. A transparent, nationally regulated market is safer than illegal bookmaking, and states should not be able to fragment a federal market.

For state control: these contracts work exactly like sports bets, and calling them swaps should not override states’ decisions about gambling. Allowing them would erase hard-won protections and let a single company do nationally what licensed operators may do only state by state.

Applying the frameworks

Utilitarian

A utilitarian lens weighs benefits such as price transparency, lower costs for users and national uniformity against risks: problem gambling without state safeguards, threats to integrity, and lost state revenue for addiction treatment. It asks which regulatory structure minimizes harm.

Kantian (duty)

A Kantian lens asks whether labeling a sports bet as a financial contract to avoid gambling rules is honest. It also asks what duties a platform owes users who may be vulnerable to gambling harm, regardless of which regulator has jurisdiction.

Justice

A justice lens asks whether it is fair for one company to avoid the licensing, taxes and consumer protections that bind state-licensed sportsbooks and tribal operators. It also asks whether college athletes, who cannot be bet on in some states, should be exposed through a federal loophole.

Walk it through: the Simple Decision Model

  1. Spot the issue. You are a state gaming regulator when a federally registered exchange begins offering contracts on college games involving teams in your state, which bans such bets. The stakeholders include residents, athletes, licensed sportsbooks, tribes, the exchange and the CFTC. The codes in play are state gaming law, the state constitution and the Commodity Exchange Act.
  2. Gather facts. What exactly does the contract pay out on? How many residents are trading? What protections, such as age limits, self-exclusion and integrity monitoring, apply on the exchange?
  3. Test options. Options: (a) issue a cease-and-desist order and go to court; (b) negotiate a licensing arrangement; (c) defer to federal regulators. Weigh consumer protection and state authority against legal risk and innovation.
  4. Check codes and law. Would your action withstand challenge in federal court? Are you protecting residents or protecting licensed operators’ market share?
  5. Decide and document. Record the evidence and legal basis for your action.
  6. Communicate and follow up. Communicate your position publicly, coordinate with other states and federal regulators, and monitor integrity risks.

What’s settled and what’s contested

  • Settled (as of October 2026): Kalshi offers sports contracts; several states have obtained injunctions; the Third, Ninth, and Sixth Circuits have issued conflicting rulings.
  • Contested: whether sports-event contracts are “swaps”; whether federal law preempts state gambling law; what protections should apply. Litigation is ongoing.

Why this case matters

Prediction markets are the newest frontier in sports betting. Leagues, colleges, and regulators that built integrity and harm-reduction programs around licensed sportsbooks now have to reckon with a parallel market.

Key terms

Integrity
A commitment to honesty and ethical principle in competition and administration, including when nobody is watching.
Controls
Concrete safeguards that make ethics operational: training, disclosure forms, testing, monitoring, hotlines. Ethics needs principles, process and controls.
Commercialization
The process of turning sport into a product and a business enterprise, with profit pressures that can compete with principle.
Trust
The public’s belief that what they are watching is real. Integrity failures are ultimately failures of trust.

Definitions from the Ethics Cases glossary.

Discussion questions

  1. Is there a meaningful ethical difference between buying a contract that pays if a team wins and placing a bet on that team? Explain.
  2. Should a federal agency's approval override a state's decision to prohibit sports betting? What values does each level of government protect?
  3. Kalshi's supporters say prediction markets aggregate information efficiently. Does that justify offering contracts on games, including college games?
  4. Who should be responsible for protecting athletes from harassment and manipulation linked to these markets?
  5. If you were a state regulator, would you seek to ban, license, or tax sports-event contracts? Defend your choice.

Sources

  1. Kalshi — Wikipedia
  2. KalshiEX LLC v. Flaherty, No. 25-1922 (3d Cir. Apr. 6, 2026) — U.S. Court of Appeals for the Third Circuit
  3. KalshiEX, LLC v. Assad, No. 25-7516 (9th Cir. 2026) — Justia
  4. KalshiEX LLC v. Schuler, No. 26-3196 (6th Cir. 2026) — Justia
  5. AG Nessel secures second order halting unlawful Kalshi sports wagers in Michigan — Michigan Department of Attorney General
  6. Kalshi found a backdoor to sports gambling, and is throwing it open to everyone — Fast Company
  7. America's new love affair with gambling drives Kalshi to $871 million haul on Super Bowl Sunday — Fortune
  8. Docket No. 26-299, Flaherty v. KalshiEX, LLC — Supreme Court of the United States
  9. Brief of the National Football League as Amicus Curiae in Support of Petitioners, No. 26-299 — Supreme Court of the United States
  10. Petition for a Writ of Certiorari, Flaherty v. KalshiEX, LLC, No. 26-299 — Supreme Court of the United States