Nevada Sues Kalshi, Challenging Legality of Prediction Markets
By John Nada·Feb 18, 2026·8 min read
Nevada has sued Kalshi after a court ruling enabled state regulators to challenge its sports prediction markets, raising questions about regulatory jurisdiction.
Nevada has initiated a lawsuit against Kalshi, a prediction market company, following a court ruling that allows the state's gaming regulator to take action against its sports prediction markets. The US Court of Appeals for the Ninth Circuit denied Kalshi's attempt to block Nevada's gaming regulator, thereby enabling the Nevada Gaming Control Board to file a civil enforcement action aimed at halting unlicensed wagering by Kalshi.
The Nevada Gaming Control Board asserts that Kalshi's sports event contracts qualify as wagering under state law, emphasizing that the company is not licensed to operate in Nevada and is violating local gaming regulations. This legal battle comes after a cease-and-desist order was issued to Kalshi last year, and despite previous temporary blocks on state action, the recent court decision marks a significant setback for the company in its ongoing struggle to maintain its operations in Nevada.
Kalshi, which argues it is regulated under federal law by the Commodity Futures Trading Commission (CFTC), has sought to move the case to federal court, maintaining that its contracts should be interpreted within the narrower scope of federal commodity exchange laws. The CFTC's chair has supported this stance, emphasizing that states should not encroach upon the CFTC's jurisdiction over designated contract markets. This case highlights the ongoing tension between state and federal regulatory frameworks, particularly concerning innovative financial instruments like prediction markets, and could set precedents for how such markets operate within the US financial system.
The US state of Nevada has sued Kalshi after the prediction market company lost its court challenge to stop the state’s regulator from taking action over its sports prediction markets. The US Court of Appeals for the Ninth Circuit on Tuesday denied Kalshi’s bid to stop Nevada’s gaming regulator from taking action on its sports event contracts, removing a block on the regulator launching a civil suit against the company. After the decision, the Nevada Gaming Control Board promptly filed a civil enforcement action in state court against Kalshi, which it said sought to block the company “from offering unlicensed wagering in violation of Nevada law.”
Kalshi swiftly filed a motion to have the suit heard in a federal court, repeating its long-held argument that it is “subject to exclusive federal jurisdiction” under the Commodity Futures Trading Commission. The appeals court order and subsequent lawsuit are a blow to Kalshi in its nearly year-long battle against Nevada to keep its sports contracts active in the state. The company and other prediction markets are facing multiple similar lawsuits from other states.
Kalshi sued the state last year in March after receiving a cease-and-desist order to halt all sports-related markets within the state. In April, a federal court backed Kalshi’s bid to temporarily block Nevada from taking action amid court proceedings. This backdrop of legal strife has contributed to a challenging environment for Kalshi, which has sought to operate within a complex regulatory landscape that encompasses both federal and state laws.
Nevada says Kalshi is flouting state law. In its latest lawsuit, the Nevada Gaming Control Board repeated its past claim that Kalshi’s sports event contracts meet the requirements to be licensed under state law, as they allow “users to wager on the outcomes of sporting events.” Despite making wagers, sports betting and other gaming activities accessible in the State of Nevada, Kalshi is not licensed in Nevada and does not comply with Nevada gaming law, the regulator argued.
In its federal court motion, Kalshi argued that such a claim means the court “must adopt a narrow interpretation” of federal commodity exchange laws, which it asserts it is regulated under by the CFTC. This assertion underscores the complexity of the regulatory environment Kalshi navigates, as it attempts to position itself within a framework that is often at odds with state-level interpretations of gambling and wagering.
CFTC chair Mike Selig has further asserted jurisdiction over prediction markets. Earlier on Tuesday, Selig indicated that his agency filed an amicus brief backing Crypto.com in a similar lawsuit the crypto exchange had brought against Nevada. Crypto.com had sued Nevada’s regulators in June after similarly receiving a cease-and-desist letter. It also appealed to the Ninth Circuit in November after losing a federal court motion to block the state from taking action. This pattern of legal challenges highlights a broader trend where multiple players in the prediction market and cryptocurrency space are confronting state regulations that they perceive as overreaching.
The CFTC argued in its brief to the Ninth Circuit that “states cannot invade the CFTC’s exclusive jurisdiction over CFTC-regulated designated contract markets by re-characterizing swaps trading on DCMs as illegal gambling.” This statement reflects a significant legal perspective: the recognition that prediction markets, when classified as commodity derivatives, fall under the purview of federal regulation rather than state law. Selig emphasized that event contracts “are commodity derivatives and squarely within the CFTC’s regulatory remit,” suggesting that the agency is prepared to defend its exclusive jurisdiction over commodity derivatives vigorously.
The CFTC’s push comes amid growing interest in prediction markets, particularly as they relate to emerging technologies and platforms. Notably, Trump Media and Technology Group announced in October its intention to introduce prediction markets to its flagship social media platform, Truth Social, through a partnership with Crypto.com. This move signals a potential expansion of prediction markets into mainstream digital platforms, raising further questions about how such markets will be regulated in both state and federal contexts.
The involvement of high-profile figures, such as Donald Trump Jr., adds another layer of complexity to the situation. Since January 2025, he has served as an advisor to Kalshi while simultaneously advising rival Polymarket after investing in the company in August. His dual roles may influence the public discourse around prediction markets and their regulatory treatment, especially given his family's prominence in American politics and media.
As the legal battles unfold, the implications for prediction markets extend beyond the immediate concerns of Kalshi and its competitors. The outcome of this case could potentially reshape the regulatory landscape for similar companies operating in the United States. If Kalshi is forced to adhere to state regulations, it may deter other innovative financial instruments from entering the market, stifling competition and limiting consumer choice.
On the other hand, if Kalshi successfully argues its case in federal court, it could set a precedent that reinforces the argument for federal jurisdiction over prediction markets. This would likely encourage more companies to engage in similar business models without the fear of state-level legal repercussions. The tension between state and federal authority is a critical theme in this evolving sector, especially as the demand for new financial products grows among consumers.
Moreover, the broader implications of this legal dispute extend to the concept of prediction markets themselves. These markets have gained traction as a method for harnessing collective intelligence to forecast future events, leveraging the wisdom of crowds. By enabling users to wager on outcomes, prediction markets provide a platform for individuals to express their beliefs and expectations regarding various scenarios, from politics to sports.
The ongoing conflict also raises questions about the ethical considerations surrounding prediction markets. Critics argue that these platforms can promote gambling-like behaviors and may lead to negative social consequences. Proponents, however, contend that when appropriately regulated, prediction markets can serve as valuable tools for information aggregation and risk management, thereby contributing positively to financial markets.
As states like Nevada ramp up enforcement actions against prediction markets, the industry must grapple with not only the immediate legal challenges but also the long-term viability of its business models. The outcome of this lawsuit and similar cases could have lasting effects on how these markets are structured, operated, and regulated in the future, ultimately shaping the landscape of financial innovation in the United States.
As the situation continues to develop, stakeholders in both the prediction market space and the regulatory arena will be closely monitoring the legal proceedings. The interplay between innovation, regulation, and market dynamics will remain a focal point of interest as the industry seeks to navigate an increasingly complex environment. The implications of these challenges may reach far beyond Kalshi, impacting the future of prediction markets and their acceptance in the broader financial ecosystem.
Ultimately, the Kalshi lawsuit serves as a pivotal moment in the ongoing discourse about the intersection of technology, finance, and regulation. As regulators seek to establish frameworks that ensure consumer protection and market integrity, companies like Kalshi must advocate for their interests while navigating the intricate web of local, state, and federal laws. The resolution of this case will not only determine the fate of Kalshi but could also herald a new era in the regulation of prediction markets in the United States.