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The case for sports event contract trading is starting to crack

Legal Writer

Publish Date: Aug 07, 2026

Fact checked by: Matt Moreno

Key Points

Federal court ruling in Kalshi v. Cox represents milestone in dispute over sports event contracts
Kalshi attorney’s deviation in argument in Rhode Island case shows weakness of position
Exchange operators’ need for definitive affirmation from US Supreme Court has grown with time

Developments this week in court cases around the United States of America regarding the legality of prediction market exchanges, especially in regard to sports event contracts, point to time not being an ally of the operators of those exchanges. The building movement in the several lawsuits is trending away from the interests of those companies.

Companies like Kalshi have secured wins in court, but nearly all of them have been limited or temporary. The long-term future of their ability to offer sports event contracts hinges on a resoundingly favorable ruling from the highest court in the land, as anything short of that puts those offerings on shaky ground at best from a long-term perspective.

August begins poorly for prediction market exchange operators

July ended with a positive development for entities like Polymarket, with a federal court temporarily blocking the enforcement of a Minnesota statute that bans all event contract trading in the state. However, the developments since then have taken an adversarial tone for those companies.

Another federal court declined to take similar action in the state of New York’s $36 billion illegal gambling lawsuit against Kalshi on Monday. That compounded the threat that the lawsuit itself poses to Kalshi’s continued existence because of its demand for damages and potential to make New York’s population off-limits for the exchange.

A day after the restraining order denial in New York, another court issued summary judgment on a dispute between Kalshi and officials in Utah.

Kalshi v. Cox turns against plaintiff

Kalshi’s decision to take a preemptive strike at law enforcement in Utah may have backfired. U.S. District Judge Robert J. Shelby granted summary judgment (when a judge rules on the merits of a lawsuit without hearing oral arguments solely based on legal briefs that have been filed in the case) in Kalshi v. Cox et al. on Tuesday, becoming the latest to deny Kalshi the protective relief it sought.

Kalshi sued Utah Gov. Spencer Cox and members of Cox’s administration in February following Cox’s publication of social media posts stating that prediction market trading “has no place” in the state. Kalshi asked the court to enjoin Utah officials from taking action against its exchange in the complaint.

Not only did Shelby deny that protection but also ruled that federal law does not prevent Utah from enforcing its laws related to gaming against Kalshi. Cox has not made any statements since the ruling and as of the time of this writing there have been no announcements from Utah law enforcement regarding any action against Kalshi or any other prediction market exchanges.

Why the ruling in Kalshi v. Cox is a bellwether for the national conversation

Shelby’s ruling represents the first time a federal court has issued an opinion on the merits of a case involving a prediction market exchange operator and a state government. Until that point, all the previous decisions involved whether to grant requests for preliminary injunctions as the cases are ongoing.

While Kalshi can appeal Shelby’s ruling, it has not yet done so. That likely depends on what if any action Utah officials take at this point, as a lack of action may make Kalshi’s arguments at the U.S. 10th Circuit Court of Appeals weak.

Convincing a federal appellate circuit court to limit how a state government can enforce its laws and vacate a federal judge’s ruling should require more of a perceived threat than “the governor said some not nice things about us six months ago.” Kalshi may want to avoid another unfavorable ruling, too, as the basis for its offering of sports event contracts is pivotal for its defense.

Basis of arguments for legality of sports event contracts

In nearly all of the arguments against state governments’ ability to treat sports event contracts as gambling products, counsel for Kalshi has hung their side of the debate on two points.

The U.S. Commodity Exchange Act (CEA) says the Commodity Futures Trading Commission has exclusive authority to regulate “swaps” in the country
Sports event contracts are “swaps” under the definition of the CEA and the Dodd-Frank Act.

Those arguments have found some favorable ears on the bench. Most notably, a federal judge in Arizona who has permanently enjoined law enforcement in that state from taking action against prediction market exchange operators and a three-member panel of the Third Circuit Court of Appeals that preliminarily issued the same order affecting New Jersey officials. However, there have also been notable court rulings calling those arguments lacking from the Sixth and Ninth circuits regarding requests for preliminary injunctions.

Kalshi is seeking that same kind of protection in Rhode Island at this time. Oral arguments in that court case revealed an interesting twist in Kalshi’s strategy.

Kalshi attorney simplifies argument in Rhode Island hearing

Oral arguments in Kalshi v. Furcolo took place on Monday, with counsel for Kalshi deviating from the previously canonical playbook during the hearing. The lawyer told U.S. District Judge Mary S. McElroy that whether sports event contracts qualify as swaps is irrelevant because the CEA gives the CFTC sole regulatory authority over all activity on approved exchanges.

McElroy posed the question to the attorney for Kalshi directly to ensure that was the intended argument, and that lawyer confirmed. This may represent a new strategy for Kalshi going forward, but there is doubt about whether it would prove effective.

Kalshi admits the rules are made up and the points don’t matter

During the Rhode Island hearing, Kalshi argued that as long as an exchange is registered with the CFTC, the CFTC is the only government body that can regulate its activity. In other words, as long as the company that runs an exchange is on good terms with CFTC Chair Michael Selig, it can do anything it wants on that exchange.

Selig is the only current member of the so-called “commission,” which fails to meet that definition because a commission contains more than one person. The Trump Administration has failed to nominate any other potential members of the bureau that the United States Congress specifies must contain five members.

Selig is in the process of updating rules for event contract trading and the draft that he submitted for comment does little to definitively address the legality of sports contracts. Selig has been active in court cases on that subject, which seem destined for the U.S. Supreme Court.

At this point, Supreme Court intervention is the best hope for the future of sports event contracts on prediction market exchanges.

Supreme Court ruling could give definitive and lasting approval to sports event contracts

There is a petition for review before the Supreme Court in Kalshi v. Flaherty, representing the first request for the highest court in the U.S. to review whether the Third Circuit erred in affirming a New Jersey district court’s grant of a preliminary injunction against state officials. If the Supreme Court takes up that case, it could start to provide definitive answers to the legal questions around Selig’s exclusive regulatory position and the legal nature of sports event contracts.

The sooner the Supreme Court could potentially answer those questions in a favorable way for prediction market exchange operators, the better for those companies. As time has passed, lasting and significant legal wins for operators in other courts have dwindled, and Kalshi has shifted its argument to try to downplay whether sports event contracts qualify as swaps.

Naturally, an unfavorable Supreme Court ruling could be devastating to sports event contracts across the country, but that risk looks like it could be operators’ best move at this point. When your arguments start to resemble “we can do anything we want because this one dude says so,” it’s quite clear that things are not going your way.

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