A federal judge has ruled that Utah can enforce its anti-gambling laws against Kalshi’s sports event contracts, rejecting the prediction exchange’s argument that federal commodities legislation protects it from state action.
US District Judge Robert J. Shelby granted Utah’s request for summary judgment on Tuesday and refused Kalshi’s application for a preliminary injunction. Kalshi said it disagreed with the decision and would appeal to the US Court of Appeals for the Tenth Circuit.
That appeal would extend legal challenges involving prediction markets to seven of the 13 federal appellate circuits.
“The court concludes the federal law relied upon by Kalshi does not preempt Utah’s ability to enforce its anti-gambling laws,” Shelby wrote.
The judge’s decision did not determine that Kalshi’s event contracts were gambling. Instead, he said the relevant provisions of the Commodity Exchange Act (CEA) could reasonably be interpreted in more than one way.
Courts generally reject federal pre-emption of state law where the legislation is ambiguous, Shelby said. He added that the CEA was not so comprehensive that it left Utah with no role in regulating gambling.
“Given the [Commodity Exchange Act’s] framework and the history of State regulation of gambling, the court cannot conclude the CEA is so pervasive that there is no room for the State of Utah to supplement it,” he wrote.
Shelby also dismissed Kalshi’s main argument about changes made to the CEA by the Dodd-Frank Act. Kalshi had argued that those amendments created federal pre-emption over derivatives trading.
The judge described that interpretation of congressional intent as “implausible”. He noted that Kalshi itself accepted gambling was an area “traditionally regulated by the states.”
Utah has some of the toughest gambling laws in the United States. Its constitution prohibits gambling entirely, while offering online betting in the state is a third-degree felony.
A new Utah law that added proposition bets to the statutory definition of gambling prompted Kalshi to file its lawsuit in February. The company acted after Governor Spencer Cox publicly criticised prediction markets and amid concerns that Utah officials might pursue criminal enforcement.
“You can’t rebrand illegal gambling as a federal commodity, and today a federal judge agreed with us,” Utah Attorney General Derek Brown said.
“Kalshi bet that clever branding would beat Utah law. Kalshi lost and Utah won.”
Cox posted after the ruling that “prediction markets are gambling, full stop” and were “causing tremendous harm to countless American families.”
Kalshi spokesperson Jacki McGavick said the company believed the decision would not be the final word in Utah. Its sports event contracts remained available to users in the state, and no enforcement action had been filed.
New York’s attorney general cited Shelby’s ruling as supplemental authority within a day of the decision. The filing was made in opposition to the Commodity Futures Trading Commission’s request for a preliminary injunction against New York, which sued Kalshi last week for allegedly operating as an unlicensed gambling business.
Gambling attorney Daniel Wallach, who highlighted New York’s filing, said a Tenth Circuit appeal would mean prediction-market disputes had reached the First, Second, Third, Fourth, Sixth, Ninth and Tenth Circuits. The Seventh and Eighth Circuits are also expected to become involved.
Wallach said that level of activity could eventually create a split between federal circuits, a development that often increases the prospect of Supreme Court review.
The ruling follows a Washington state court injunction on 20 July. That court rejected the same federal pre-emption argument and found that Kalshi “operates an online betting platform”.
More than 40 states have opposed the CFTC’s claim that it has exclusive jurisdiction over prediction markets. Kalshi’s strongest results so far have come in the Third Circuit, whose April rulings protected the company in New Jersey, and from a Minnesota federal judge who blocked the state’s felony ban last week.
The Utah lawsuit alleges that Kalshi operated as an unlicensed gambling operator, arguing that prediction markets meet the legal definition of…
