Kalshi: Financial Tool or Gambling? The Legal Battle for Prediction Markets

Kalshi Inc. Now controls 89% of the U.S. Prediction market, establishing a dominant position as the industry shifts toward regulated trading. The Manhattan-based platform, launched in July 2021, is currently central to a high-stakes legal conflict over whether prediction markets should be regulated as financial instruments or as gambling.

The dispute centers on the nature of sports-related event contracts. These contracts allow users to trade on the likelihood of yes-no occurrences, such as the outcome of a professional sports game. Kalshi argues that these instruments are swaps on federally recognized designated contract markets, placing them under the exclusive purview of the Commodity Futures Trading Commission (CFTC).

Conversely, various state governments and tribal authorities argue that these contracts are effectively gaming. They contend that such activity should be regulated by state laws and federal tribal law, asserting that Congress did not intend for sports betting to fall under the authority of the CFTC.

Federal Court Ruling on State Jurisdiction

On April 7, 2026, a three-judge panel of the Philadelphia-based 3rd U.S. Circuit Court of Appeals ruled 2-1 that New Jersey gaming regulators cannot prevent Kalshi from allowing users in the state to place financial bets on sporting events. The court found that the CFTC has exclusive jurisdiction over the sports-related event contracts traded on the platform.

The ruling follows a legal battle that began after New Jersey sent Kalshi a cease-and-desist letter in 2025, claiming the platform violated state gambling laws, specifically those prohibiting betting on collegiate sports. U.S. Circuit Judge Jane Richards Roth dissented from the decision, stating that Kalshi is facilitating gambling and that its offerings were virtually indistinguishable from such activity.

Kalshi CEO Tarek Mansour described the decision as a big win for the industry and millions of users in a post on X.

Market Dominance and Revenue

Kalshi’s growth has been heavily driven by sports betting, which accounts for more than 90% of the activity on the site. In 2025, sports betting constituted 89% of the platform’s revenue. Analysts describe the site’s activity as being heavily tied to the sports calendar.

While sports dominate the platform, Kalshi also facilitates trading on other future events, including:

• Economic indicators
• Political outcomes
• Cultural events
• Technological developments

The platform’s popularity increased after KalshiEX LLC prevailed in a legal challenge against the Biden administration’s CFTC regarding election-related contracts. This momentum has continued as the Trump administration has shown a more welcoming stance toward prediction markets.

Regulatory and Legal Challenges

Despite its market share, Kalshi is engaged in more than a dozen lawsuits across the United States. The company is arguing that it can offer sports event contracts without state licenses in several jurisdictions, including:

• New York
• Ohio
• Maryland
• Massachusetts
• Nevada
• New Jersey

Federal trial court rulings in California, Maryland, Nevada, and New Jersey have yielded mixed results. The broader legal fight is viewed as a fundamental conflict over whether fast-growing prediction markets will be regulated as finance or gambling, a dispute that could eventually reach the U.S. Supreme Court.

Beyond state regulation, Kalshi has faced controversies regarding the ethics of wagers on sensitive geopolitical issues, insider trading, and concerns from politicians and consumer advocacy groups regarding election integrity and public trust in democratic processes.

Kalshi was founded in 2018 by financial analysts Tarek Mansour and Luana Lopes Lara, and was briefly known as Kownig during its early stages. The company attained its license from the CFTC as a designated contract market in November 2020 before its public launch in July 2021.