Place Your Bets: US District Courts are Split on Whether the Commodity Exchange Act Preempts State Gaming Laws with Respect to Sports Event Contracts

Derivatives exchange and prediction market KalshiEX LLC (Kalshi) was handed a litigation setback in defending its sports event contract offerings in federal court against claims brought by the State of Maryland. The District Court for the District of Maryland denied Kalshi’s motion for a preliminary injunction, allowing Maryland gaming regulators to pursue civil and criminal enforcement against Kalshi for offering sports events contracts without obtaining a Maryland gaming license. Kalshi has filed a motion for staying the unfavorable ruling while Kalshi pursues an appeal in the Fourth Circuit.

Background

Event contracts are derivative financial instruments where buyers make binary predictions about future events (e.g., yes, an event will occur or no, it won’t) and receive payouts based on whether their predictions prove correct. These contracts are generally regulated as swaps under the Commodity Exchange Act (CEA). Sports event contracts specifically allow users to trade on sporting outcomes — for example, predicting which team will win the Super Bowl or advance to the National Collegiate Athletic Association tournament semifinals.

Sports event contracts first began trading in December 2024.[1] Since then, Kalshi and other entities offering these contracts have faced cease-and-desist orders from gaming regulators in multiple states.  Kalshi responded by filing motions for preliminary injunctions in Nevada, New Jersey, and Maryland, arguing that the CEA’s regulation of derivatives markets preempts state gaming laws.

New Jersey and Nevada Agree with Kalshi

The first two federal courts to rule on these disputes sided with Kalshi.  The U.S. District Court for the District of Nevada granted Kalshi’s motion for a preliminary injunction against the Nevada Gaming Commission on April 9, 2025.[2] The court found that Kalshi was likely to succeed on its argument that the CEA’s plain language grants the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over transactions on designated contract markets (DCMs). Even if this did not amount to express preemption, the court concluded that Congress intended for the CFTC to “occupy the field” of regulating transactions on CFTC-designated exchanges.[3] Because Kalshi is a CFTC-registered DCM, the court explained that the Nevada Gaming Commission likely cannot regulate Kalshi’s sports event contracts.

The US District Court for the District of New Jersey reached the same conclusion on April 28, 2025, granting Kalshi’s preliminary injunction motion.[4]  The court noted, "Kalshi’s sports-related event contracts fall within the CFTC’s exclusive  jurisdiction.”[5] The New Jersey Division of Gaming Enforcement has appealed to the Third Circuit.

Maryland Causes a Split

The US District Court for the District of Maryland disagreed with the Nevada and New Jersey courts.[6] Kalshi had argued for field preemption, claiming that when Congress expanded the CEA in 2010 through the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to give the CFTC exclusive jurisdiction over swaps traded on DCMs, it occupied the field of regulating such transactions.

However, the Maryland court focused on Supreme Court precedent establishing a strong presumption against federal preemption, noting that “regulating gambling is at the core of the state’s residual powers as a sovereign.”[7] While agreeing there was “at least some preemptive effect,”[8] the Maryland court found that Kalshi failed to establish that “Congress clearly and manifestly intended to strip states of their authority to regulate gambling.”[9]

The court also rejected conflict preemption, finding that (i) compliance with both Maryland law and the CEA is possible; and (ii) Kalshi could obtain a Maryland gaming license while still providing impartial access to its DCM as required under the CEA. However, this reasoning would effectively allow states to condition access to federally-regulated derivatives markets on obtaining state licenses.

On August 5, 2025, Kalshi appealed the decision to the Fourth Circuit Court of Appeals.

Conclusion

This split at the district court level could result in conflicting Appeals Court decisions, potentially setting up Supreme Court review. Numerous parties, from former members of Congress to Native American tribes, have filed amicus briefs in these cases, as the outcome could determine whether states retain authority to regulate activities they consider gambling when those activities are conducted on federally regulated derivatives exchanges.[10]

For questions about the legal issues relating to sports event contracts and event contracts more generally, please contact the Katten Financial Markets and Regulation attorneys listed on this post.

[1] Crypto.com, Crypto.com Launches Sports Event Trading (Dec. 23, 2024), https://crypto.com/us/product-news/sports.

[2] Order, KalshiEx LLC v. Hendrick, No. 2:25-cv-00575-APG-BNW (D. Nev. Apr. 9, 2025).

[3]Id. 

[4] Opinion, KalshiEx LLC v. Flaherty, No. 1:25-cv-02152-ESK-MJS (D.N.J. Apr. 28, 2025).

[5]Id. at 4.

[6] Opinion, KalshiEX LLC v. Martin, No. 25-cv-1283-ABA, (D. Md. Aug. 1, 2025).

[7]Id. at 11.

[8]Id. at 15.

[9]Id. at 16.

[10]See, e.g., Brief for Bitnomial Exchange, LLC as Amicus Curiae Supporting Plaintiff-Appellee and Affirmance (filed by Katten Muchin Rosenman LLP), KalshiEX LLC v. Flaherty, No. 25-1922 (3d Cir. filed July 31, 2025), available here.