Kalshi Disrupts Sports Betting Through a Legal Loophole

growing legal standoff that could redefine the U.S. sports betting industry. Despite multiple cease-and-desist orders from state gambling authorities, Kalshi continues to allow s across all 50 states to trade on the outcomes of sporting events—under the umbrella of federal financial regulations, not state gaming laws.

Sports regulators argue that Kalshi’s contracts are equivalent to sports bets, requiring a state license. “The purchase of the contract is indistinguishable from the act of placing a sports wager,” the Maryland Lottery and Gaming Control Commission wrote in April. But Kalshi insists it’s a federally regulated exchange, not a sportsbook, and answers to the Commodity Futures Trading Commission (CFTC), not state authorities.

Legal Battles and a Growing Base

Kalshi, which lists former President Donald Trump’s advisor Donald Trump Jr. among its backers, has faced enforcement from seven states and responded by suing three of them. Courts in Nevada and New Jersey have sided with Kalshi, allowing it to continue operations in key betting markets while litigation proceeds.

“If courts ultimately sided with Kalshi, it could open the door for a widespread use of sports-based event contracts outside of traditional sportsbook regulation,” said Johnny P. ElHachem, a gaming attorney with Holland & Knight.

Kalshi argues its model differs fundamentally from traditional sportsbooks. Unlike operators such as DraftKings or FanDuel, which profit off losses, Kalshi charges a transaction fee for matching buyers and sellers—like a brokerage, not a bookmaker. “We are simply an exchange,” said Sara Slane, Kalshi’s head of corporate development.“We don’t win by people losing. And we don’t lose by people winning.”

With around 2 million s, Kalshi has facilitated over $1 billion in sports contracts since launching sports markets in early 2024.

Federal vs. State Oversight: A Brewing Conflict

Kalshi’s legal advantage lies in its status as a CFTC-regulated Designated Contract Market, which allows it to by state licensing. Critics, including major U.S. sports leagues, warn that this model lacks the oversight of traditional sportsbooks. In letters to the CFTC, the NFL, NBA, and MLB expressed concern that these contracts could “mimic sports betting but seemingly without the robust regulatory features” needed to protect game integrity.

The NBA voiced fears that such platforms could eventually offer bets on individual player performance or other sensitive props, without safeguards like trade reporting or integrity monitoring.

What’s Next for Prediction Markets

The CFTC has yet to weigh in, postponing a roundtable on prediction markets. Meanwhile, firms like ProphetX, Robinhood (via Kalshi), and Sporttrade are exploring similar models. Even DraftKings and FanDuel are reportedly considering entering the space, though they remain cautious to avoid upsetting state regulators.

“This fundamentally impacts where the line is drawn between financial speculation and regulated betting,” ElHachem said. “And I think it reshapes the entire sports wagering ecosystem.”

Source:

“How Kalshi and prediction markets are disrupting sports betting” espn.com Jun 2, 2025