Connecticut Judge Rules Kalshi Sports Contracts Are Gambling, Not Swaps
A federal judge rejected Kalshi's bid to block Connecticut's gambling law, finding its sports contracts aren't federally regulated swaps.
This article was produced with AI assistance and edited by the ON360 newsroom.
A federal judge in Connecticut has dealt another legal setback to Kalshi, ruling that the prediction-market operator’s sports event contracts are gambling products, not financial “swaps” shielded from state oversight. The decision, handed down by U.S. District Judge Vernon D. Oliver, denies Kalshi’s request to block Connecticut’s Department of Consumer Protection from enforcing the state’s gambling laws against the company.
Oliver found Kalshi was unlikely to succeed on either of its two core legal arguments: that its sports contracts qualify as swaps under the federal Commodity Exchange Act (CEA), and that the CEA preempts state gambling regulation entirely. The same judge, on the same day, also denied a related preliminary injunction sought by Coinbase against Connecticut officials, citing his Kalshi analysis as precedent.
Court says “event” means the game, not the outcome
Central to the ruling was how Oliver interpreted the CEA’s language around the “occurrence, nonoccurrence, or extent of the occurrence of an event.” He concluded that Congress meant the sporting event itself — not who wins it — pointing to a prior Nevada ruling that used the Kentucky Derby as an example: the race is the event, the winner is merely an outcome.
“Kalshi characterizes its sports-related event contracts in various ways, but at bottom, they are sports wagers,” Oliver wrote, echoing language from that earlier Nevada decision against Kalshi. He added that Kalshi’s contracts depend on outcomes or in-game occurrences rather than on whether the event happens at all, and therefore fall outside the statutory definition of a swap. The court also found the contracts lacked the “financial, economic, or commercial consequence” the CEA requires of a swap.
The ruling notes that federal courts remain split on the question — a Tennessee judge reached the opposite conclusion earlier this year, granting Kalshi an injunction after finding that an outcome can itself count as an “event.” But Oliver observed that every state court to rule on the issue so far had sided against Kalshi.
No federal preemption, judge finds
Oliver went further, holding that even if the contracts were swaps, Kalshi’s preemption argument would still likely fail. He pointed to the CEA’s “Special Rule” covering gaming-related contracts and to Section 16, where Congress expressly preempted certain state gambling laws — but not, in the court’s view, the type of regulation Connecticut applies here.
“Taken together, the CEA’s text, structure, and targeted preemption provisions demonstrate that Congress did not intend the statute to occupy the field of state regulation at issue here,” Oliver wrote. He also rejected Kalshi’s claim that Connecticut’s licensing requirements conflict with CFTC rules on impartial market access, finding, similarly to a recent Utah ruling, that those rules do not force Kalshi to offer contracts nationwide. “Because the two regimes can coexist, Kalshi’s attempt to evade Connecticut’s requirements fails,” he wrote.
Sports contracts dominate Kalshi’s business
Court filings from the Feb. 11 hearing showed sports event contracts made up between 80% and 90% of Kalshi’s listings and revenue at the time, with the company’s valuation pegged at roughly $11 billion. Oliver noted that despite this scale, the CFTC had not subjected a single one of those sports contracts to review under the CEA’s Special Rule, undercutting Kalshi’s argument that self-certification amounts to federal approval.
The case underscores the unresolved patchwork of U.S. rulings on whether prediction markets like Kalshi can operate outside state gambling frameworks — a debate closely watched by Canadian operators and regulators as prediction-market products expand across North America. In Ontario, sports wagering and iGaming remain tightly regulated through the AGCO and iGaming Ontario, with licensed operators required to offer responsible-gambling tools such as deposit limits and self-exclusion, a contrast to the murkier legal footing prediction markets currently occupy south of the border.
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