Kalshi’s two-win streak ended with a preliminary loss in its lawsuit against Maryland gaming regulators—a shift from prior federal district court rulings and a win for states on the federal preemption issue at the center of Kalshi’s litigation.
On Aug. 1, U.S. District Court Judge Adam B. Abelson denied Kalshi’s motion seeking a preliminary injunction to prevent Maryland’s gaming regulator from enforcing a cease-and –desist directive issued under the state’s gaming laws against Kalshi for offering sports wagering within the state without regulatory approval. This marks the first time state regulators have been able to convince a federal judge that they are likely not preempted from regulating Kalshi’s sports event contracts. The Maryland judge’s decision conflicts with prior rulings issued by federal district judges in Nevada and New Jersey—setting up a potential showdown in the U.S. Supreme Court.
Background
Since July 2021, Kalshi has offered customers the opportunity to place trades on various future events. In October 2024, after some litigation with its primary federal regulator, the Commodities Futures Trading Commission (CFTC), Kalshi expanded its offerings to include contracts on the outcome of political elections and did offer such contracts on the 2024 presidential race and other political contests. Then, on the eve of the 2025 Super Bowl, Kalshi debuted contract offerings on the outcome of sporting contests and now actively trades contracts across all 50 states on virtually all major sporting events.
Despite Kalshi’s popularity, or perhaps because of it, its entry into the world of sports event contracts did not go unnoticed by state gaming regulators. In early April, several regulators sent letters to Kalshi, each putting the company on notice that by offering its sports event contracts, it was operating in their respective jurisdictions without the required state regulatory approval and in violation of state law. The letters directed Kalshi to immediately cease and desist their illegal activities or face civil and/or criminal enforcement actions.
Kalshi reacted to these regulatory efforts by going on the offensive, filing federal lawsuits in Nevada, New Jersey and Maryland wherein it sought to have the courts declare that it was not required to comply with state gaming laws because those laws were effectively preempted by federal law, namely the Commodity Exchange Act (CEA). Kalshi also asked the courts to preliminarily enjoin the state regulators from taking any enforcement action against them, arguing that it would be irreparably harmed by such efforts.
Kalshi Finds Early Success in Nevada and New Jersey
On April 8, Kalshi’s suit against the Nevada regulators brought its first victory, with U.S. District Judge Andrew P. Gordon entering a preliminary injunction against the state after finding that Kalshi was likely to prevail on the merits of its argument and that it faced irreparable harm if the state was allowed to go forward with its threatened enforcement actions.
Judge Gordon essentially agreed with Kalshi’s federal preemption argument, finding that “Nevada regulatory agencies have no jurisdiction to decide that Kalshi’s conduct violates state law where, at least at present, those activities are legal under federal law.” Later that same month, on April 28, Kalshi achieved the same result in New Jersey, where U.S. District Judge Edward S. Kiel similarly agreed with Kalshi’s argument on federal preemption and also concluded that Kalshi would be irreparably harmed absent the imposition of a preliminary injunction to stop New Jersey’s threatened enforcement action.
While the Nevada case is still being litigated in the district court, New Jersey’s regulators immediately appealed their loss on the preliminary injunction and that case is now pending in the U.S. Court of Appeals for the Third Circuit.
The Streak Ends in Maryland
In the wake of these two preliminary victories in Nevada and New Jersey, Kalshi seemed to have some significant momentum in advancing its federal preemption argument and then, Judge Abelson weighed in—not giving Kalshi’s federal preemption argument the weight that his brethren in Nevada and New Jersey did.
First, he cited U.S. Supreme Court precedent establishing a strong presumption against preemption, noting that it is “well recognized that regulating gambling is at the core of the state’s residual powers as a sovereign in our constitutional scheme” and that “the courts and Congress have long recognized states’ authority to regulate gambling conducted within their borders.”
With that negative presumption in mind, Judge Abelson turned to the question of whether Kalshi has shown that Congress had clearly intended to preempt states’ (or tribes’) authority to regulate gambling if offered on a platform like Kalshi’s when it enacted the CEA and amended it pursuant to the Dodd-Frank Act in 2010. He concluded that it did not.
While the judge agreed that Congress’s intent was clear in conferring exclusive regulatory jurisdiction on the CFTC among federal agencies, and the same may also apply to some state regulatory jurisdiction, that could not be said of the states’ traditional regulatory jurisdiction when it comes to gambling. Judge Abelson observed that the states have a historically significant interest in regulating gambling activity, concluding that Kalshi had failed to show that it had a likelihood of success on the merits of its suit and denied its motion for a preliminary injunction.
What Happens Next?
Despite its setback in Maryland, Kalshi still has a winning 2-1 record so far in its battle with state regulators. However, for Kalshi, this one loss poses a significant practical problem, which will now become the focus of the next couple of steps in the litigation.
Because Judge Abelson refused to stop the state’s gaming regulators from taking enforcement action against Kalshi, the company faces the very real dilemma of either ceasing all operations in the state—something it contends is impossible, or at least extremely impractical and potentially illegal, to do—or face possible criminal prosecution.
In its motion to Judge Abelson seeking relief pending appeal, Kalshi makes the argument that because it does not currently use geolocation technology to eliminate potential customers from a specific geographic location, it cannot practically stop doing business with its estimated 17,000 users in Maryland, many of whom have open investments in the platform. Therefore, Kalshi contends that a brief injunction pending appeal is required, lest it be faced with a self-described untenable choice.
According to its motion: “It would either have to cease offering its sports-event contracts exclusively in Maryland while leaving them in place elsewhere, running afoul of the impartial-access requirements imposed on Kalshi by federal law, or else it would have to cease offering its sports event contracts nationwide, which would be especially problematic given that Kalshi has obtained preliminary injunctions in two states permitting it to offer these very same contracts.” Kalshi initially requested the judge rule on its motion by Aug. 5 and indicated that it intends to seek the same relief from the Fourth Circuit if necessary. However, on Aug. 4, Kalshi filed a notice with the court indicating that the defendants agreed to forego enforcement of the relevant Maryland laws pending a court-ordered status conference scheduled for Aug. 13.
Implications Going Forward
Judge Abelson is the first judge to essentially say what many gaming experts have been saying all along: sports event contracts are simply sports betting by another name and on a different type of platform and should nevertheless be subject to state law and regulation.
To be sure, each of these rulings in Nevada, New Jersey and Maryland are only preliminary, and in none of these cases has the judge reached a final decision on the merits. Indeed, as noted above, final clarity on the legal questions presented by these cases may be headed for inconsistent rulings on appeal, thus teeing up a classic “circuit split” and possible review by the Supreme Court. Nevertheless, in light of this recent development in Maryland, gaming regulators in other states may well feel emboldened to ratchet up their enforcement efforts against Kalshi as they perhaps feel more confident that their legal position is stronger than it may have appeared previously.
Ironically, as Judge Abelson considers Kalshi’s request for a stay of the effect of his decision in denying Kalshi’s preliminary injunction, he may consider whether Kalshi should have predicted this outcome. Many experienced observers in the gaming space would have put their money on the Maryland court’s determination as a safe bet. Brownstein’s gaming team is watching this space very closely.
