[co-author: Stephanie Kozol]*
Massachusetts Attorney General (AG) Andrea Joy Campbell recently filed a lawsuit in Suffolk Superior Court against KalshiEX LLC (Kalshi), an online prediction market platform, alleging that the platform runs an illegal sports wagering operation without an appropriate license in Massachusetts. The complaint asserts that Kalshi offers Massachusetts consumers the equivalent of sports betting under the guise of “event contracts,” letting users wager yes-or-no options on sporting outcomes just like traditional bets. In the AG’s view, these contracts closely resemble sports wagers offered by licensed sportsbooks, and Kalshi actively promoted its sports products via TV and social media in the Commonwealth while allowing trades through third-party apps like Robinhood. Because Kalshi asserts that its event contract business does not constitute gaming, Kalshi never obtained a license from the Massachusetts Gaming Commission to engage in gaming-related activities.
Campbell’s lawsuit claims that Kalshi’s operation lacks key consumer protections. Investigators say the platform accepted bets from users aged 18 to 20 despite the state’s prohibition against individuals under the age of 21 engaging in online sports wagering and failed to implement robust responsible gambling measures such as deposit limits. Without these safeguards that would apply to traditional gaming operations, the AG argues that Kalshi’s offerings are unsafe for consumers and could exacerbate risks of addiction and financial harm, especially among young consumers. The AG is seeking an injunction to halt Kalshi’s sports contracts in the state.
Robinhood’s Response: A Lawsuit Asserting Preemption
In a rapid response to the AG’s action, Robinhood — which partners with Kalshi to offer event contracts to its users – filed its own lawsuit on September 15. Robinhood asked the U.S. District Court for the Northern District of Massachusetts to block the state from interfering with its sports event contract trading, arguing that state authorities have no jurisdiction over these activities. In the filing, Robinhood contends any state enforcement would violate the Supremacy Clause by attempting to supersede the Commodity Exchange Act (CEA), the federal law under which Kalshi’s market is regulated.
Widening Regulatory Scrutiny of Kalshi’s Predictive Market Contracts
These developments in Massachusetts are just the latest in a series of actions by states that have balked at the platform’s predictive market contracts, arguing that they constitute an end run around the states’ traditional regulatory authority over gaming. Additional states that have taken action include:
- Nevada: In early 2025, the Nevada Gaming Control Board issued a cease-and-desist order deeming Kalshi’s sports and election contracts as unlawful gambling. Kalshi sued in federal court, arguing Nevada’s gaming laws were preempted by the CEA, since Kalshi operates as a Commodity Futures Trading Commission (CFTC)-designated contract market. A federal judge agreed, granting Kalshi a preliminary injunction that blocked Nevada regulators from halting its sports contracts. The court found that Kalshi was likely to prevail on the merits of its preemption claim.
- Maryland: Maryland’s gaming authority likewise ordered Kalshi to stop offering predictive sports contracts in the state, prompting Kalshi to sue on similar federal preemption grounds. Unlike Nevada, however, the Maryland court denied Kalshi’s request for an injunction, reasoning that there was no clear distinction between Kalshi’s contracts and traditional sports betting. This meant Maryland could treat Kalshi’s products as illegal gambling. Kalshi quickly appealed this ruling to the U.S. Court of Appeals for the Fourth Circuit.
- New Jersey: Similarly, New Jersey regulators ordered Kalshi to cease operating in the state in early 2025. A U.S. district court sided with Kalshi — barring New Jersey from enforcing its gambling laws against the company — and the state appealed. During recent Third Circuit oral arguments, judges appeared skeptical of New Jersey’s position, questioning how sports event contracts could be excluded from the broad federal definition of “swaps” under the CEA. The panel noted that the CEA gives the CFTC exclusive jurisdiction over designated contract markets.
- Other States: Beyond these lawsuits, Kalshi has received cease-and-desist letters from at least four other states — Arizona, Illinois, Montana, and Ohio — over its predictive market contracts. In addition, lawsuits have been initiated against Kalshi by tribal governments in California and Wisconsin.
Why It Matters
The lawsuit against Kalshi in Massachusetts underscores the unresolved legal questions surrounding event-based prediction markets and state gambling prohibitions. At the center is a novel jurisdictional conflict around whether contracts predicting sports outcomes are a form of regulated commodity trading under exclusive federal oversight, or are a form of sports wagering that states can outlaw or regulate. So far, regulators and courts are divided. Cases in Nevada and New Jersey suggest a willingness to view Kalshi’s markets as federally sanctioned instruments outside state control. A federal court in Maryland, by contrast, saw no meaningful difference between Kalshi’s contracts and a bet via a sportsbook, and upheld the state’s right to regulate or prohibit those contracts under state gambling laws. The Massachusetts AG has now taken a firm stance that Kalshi must obtain a sports betting license and follow state laws if it wants to operate in the state.
These cases will set important precedent for how prediction markets are treated going forward. If courts ultimately side with state regulators, Kalshi and similar platforms might face fragmented compliance burdens — having to tailor or shut down their offerings state by state in line with gambling laws. Conversely, a ruling in favor of federal preemption could pave the way for broader adoption of event-based contracts nationwide, effectively opening new markets even in jurisdictions that ban traditional sports betting. Businesses involved in prediction markets will be forced to navigate an uncertain landscape and closely follow these cases as they make their way through the district and appellate courts.
*Senior Government Relations Manager
