A federal appeals court cleared the way for Nevada state regulators to move for a temporary restraining order against prediction market platform Kalshi on Thursday. The ruling signals a significant setback for the rapidly growing company, which allows users to bet on sports outcomes, elections, and other real-world events.
The Nevada Gaming Control Board sent Kalshi a cease-and-desist order in March 2025, ordering it to stop offering sports-related prediction market contracts. When the company initially sought to challenge the order through the courts, federal judges in New Jersey and Nevada granted Kalshi preliminary injunctions to prevent regulatory enforcement. However, the situation shifted dramatically in the months that followed. U.S. District Judge Andrew Gordon sided with the Nevada Gaming Control Board and dissolved his 7-month-old preliminary injunction that allowed Kalshi to continue operations while it fights the state's cease and desist order.
At the heart of the dispute is a fundamental question that remains unresolved across American law: are prediction market contracts financial instruments or gambling? Kalshi operates a federally regulated prediction market that allows users to trade contracts based on the outcome of real-world events. In simple terms, users buy and sell "event contracts" tied to whether something will happen, for example, whether a particular sports team will win a game or whether an individual will win an election. The company argues that its so-called "event contracts" are "swaps," a legal form of derivative contract, rather than bets. Unlike traditional sportsbooks, which profit by setting odds and acting as the counterparty (or in common parlance as the "house") that takes a direct loss when a customer wins, Kalshi claims it is a peer-to-peer exchange where users trade contracts with each other.
Nevada's gaming regulators see it differently. State regulators view the model differently. They argue that regardless of labels, most of Kalshi's event contracts function like those of other sports betting platforms in substance and therefore require compliance with state gaming laws. The Nevada Resort Association told the court that Kalshi's sports prediction markets have "increased exponentially" to include multievent, multispot parlay wagers.
The stakes are considerable. Kalshi alone reported nearly $10 billion in trading volume in January 2026, driven largely by sports contracts. Kalshi reported nearly $1.9 billion in college basketball wagers in February 2026 alone, demonstrating the prediction market regulation challenges states must address. Across all sports, the American Gaming Association estimates that states have lost out on over $600 million in tax revenue from wagers placed on unregulated prediction markets.
Judge Gordon justified his shift in position by examining Kalshi's expanding product offerings. Gordon wrote that Kalshi's interpretation "would require all sports betting across the country to come within the jurisdiction of the Commodity Futures Trading Commission (CFTC)" rather than state and tribal gaming regulators. In his reasoning, Gordon's order reads: "Kalshi relies on a strained reading of the already convoluted Commodities Exchange Act in an attempt to evade state regulation. Kalshi's interpretation would require all sports betting across the country to come within the jurisdiction of the CFTC rather than the states and Indian tribes. That interpretation upsets decades of federalism regarding gaming regulation, is contrary to Congress' intent behind the CEA and cannot be sustained".
The regulatory conflict reflects a deeper divide between federal and state authority. The CFTC under Chair Michael Selig has asserted CFTC prediction market jurisdiction, reversing the Biden Administration's cautious stance and setting up a direct conflict with state regulators over who controls this emerging industry. Representatives of the Commodity Futures Trading Commission have said the federal oversight allows Kalshi and other companies to operate in all 50 states, even those where gambling is illegal. The Trump administration threw its support behind prediction companies in the legal battles between the industry and states wishing to ban the platforms. The CFTC backed Kalshi in the 9th Circuit through a "friend of the court" brief.
Gaming regulators in more than 20 states have filed legal challenges against Kalshi and other prediction market companies that have temporarily blocked the businesses from offering sports contracts. Arizona has taken an even more aggressive stance. Arizona Attorney General Kris Mayes filed criminal charges against Kalshi, accusing it of operating an illegal gambling business in the state and violating a state law barring wagering on elections. "Kalshi may brand itself as a 'prediction market,' but what it's actually doing is running an illegal gambling operation and taking bets on Arizona elections, both of which violate Arizona law," Mayes said in a Tuesday release announcing the charges.
Legal analysts predict this conflict will eventually reach the Supreme Court. Jaret Seiberg, an analyst with TD Cowen, predicted in a client note that the U.S. Supreme Court would eventually have to settle tensions between federal commodities law and state gambling regulation. Some analysts see this ruling as revealing a split between federal courts. For example, in the spring of 2025, New Jersey courts acknowledged the merits of Kalshi's position as they granted preliminary injunctions, but in August a Maryland court rejected its arguments. This is why Jaret Seiberg predicted that the U.S. Supreme Court would eventually have to settle tensions between federal commodities law and state gambling regulation.
The practical outcome of Nevada's latest legal victory remains uncertain. According to a gaming lawyer, a temporary restraining order would push Kalshi out of Nevada entirely for at least two weeks, pending a hearing on a preliminary injunction. The temporary restraining order could come in the next day or so. Kalshi has indicated it will continue to contest the ruling. The broader question, however, extends far beyond one state: whether an entire emerging industry can operate on federal regulatory authority alone, or whether states retain the power to regulate wagering conducted within their borders.