A bipartisan coalition of 37 states, led by Nevada and Ohio, has petitioned the U.S. Court of Appeals for the Fourth Circuit to block federal financial rules from becoming a “backdoor” for unregulated sports betting.
In an amicus brief filed December 22 in KalshiEx LLC v. Martin, the attorneys general argue that “event contracts” offered by prediction markets like Kalshi are effectively sports wagers that bypass state consumer protections.
The Core Conflict: Gaming vs. Investing
The states contend that Congress never intended for the Commodity Futures Trading Commission (CFTC) to usurp states’ historic “police power” over gambling. The brief frames the dispute as a critical boundary line: while federal regulators oversee financial derivatives, they lack the mandate to regulate sports betting, a sector traditionally managed by state commissions to ensure age verification and problem gambling support.
Nevada Attorney General Aaron D. Ford, co-leading the effort with Ohio Attorney General Dave Yost, emphasized the risk of federal overreach. “Nevada is the foundational home of sports wagering, and states, not federal financial regulators, have decades of experience protecting consumers,” Ford stated. He warned that treating sports bets as financial contracts ignores real-world harms like underage gambling.
Regulatory Scrutiny Escalates
The appeal supports Maryland officials, who are fighting to enforce local gambling laws against Kalshi’s sports-event contracts. The brief argues that accepting Kalshi’s position would leave sports betting “largely unregulated” at scale, creating a massive gap in oversight.
This legal push coincides with enforcement actions elsewhere. In Connecticut, regulators recently issued cease-and-desist orders to Kalshi, Robinhood Derivatives, and Crypto.com, asserting that only licensed entities may offer sports wagering products. Meanwhile, federal regulators have expressed alarm at how closely these “event contracts” resemble commercial sports betting.
For industry stakeholders, the coalition’s message is clear: using federal derivatives status to sidestep state gaming laws poses a significant compliance risk.
