Key Highlights:
- Utah estimates that Kalshi collected between $30.6 million and $61.2 million in fees from accounts in the state, while Attorney General Derek Brown seeks to halt the alleged illegal gambling and recover the money.
- Courts have reached conflicting conclusions over whether federal regulation of Kalshi’s event contracts preempts state gambling laws, with rulings diverging across Utah, New Jersey and Connecticut.
- Artemis recorded $394.2 billion in trailing-year prediction-market trading volume as of October 21, including $169.9 billion in sports contracts, underscoring the industry’s exposure to regulatory uncertainty.
Utah Targets Kalshi Over Alleged Illegal Sports Gambling
Utah is taking legal action against Kalshi over its sports prediction contracts, according to the Utah News Dispatch. Attorney General Derek Brown is demanding that the company halt what state officials characterize as illegal gambling and return money collected from Utah accounts. Utah estimates that Kalshi received between $30.6 million and $61.2 million in fees from those accounts.
The lawsuit could extend regulatory exposure beyond prediction exchanges to the companies that support their markets. If states can hold those companies accountable in addition to the exchanges themselves, legal risks could spread throughout the prediction-market industry. The claims remain unverified, and neither Kalshi nor Polymarket has been shown to be liable.
Legal pressure on market makers could widen spreads, weaken liquidity or shift trading elsewhere, including offshore. However, there is no evidence that Susquehanna has withdrawn from Kalshi.
Kalshi Argues That Federal Regulation Preempts State Gambling Laws
Kalshi’s central argument is that it operates a designated contract market regulated by the Commodity Futures Trading Commission. Because the CFTC regulates the company, Kalshi contends that its event contracts fall under federal oversight and that states cannot classify them as illegal gambling.
Utah disputes that interpretation. The CFTC has broad authority over swaps under 7 U.S.C. § 2, but the statute also recognizes that the authority of other federal and state regulators and courts remains intact. Utah argues that this preserves its ability to enforce gambling laws against sports contracts offered by Kalshi. Kalshi, in turn, maintains that federal law dominates the dispute.
Courts Have Reached Conflicting Conclusions
Judicial decisions have not produced a uniform answer. On August 4, a Utah court ruled that Kalshi’s claims of federal supremacy over state gambling laws were incorrect. The Third Circuit reached the opposite conclusion in a New Jersey matter, siding with Kalshi, while the Ninth and Sixth Circuits supported the states in separate cases.
The split extends beyond Utah and reflects a broader conflict over how federal derivatives regulation applies to contracts involving sports outcomes. The Utah ruling addressed Kalshi’s supremacy argument rather than establishing that either Kalshi or Polymarket is legally liable.
Connecticut Case Focuses on Sports Betting Contracts
Connecticut is separately pursuing Kalshi. Attorney General William Tong filed a lawsuit on August 26 seeking to stop what state officials believe is illegal sports betting. The action followed an August 10 federal court ruling that rejected Kalshi’s attempt to prevent enforcement of Connecticut’s gambling laws.
That court held that contracts for sports betting were not covered by federal law as swaps. Kalshi contested the decision, arguing that CFTC regulation takes precedence over state law. The CFTC has also acted to defend its regulatory authority: it sued three states on April 2 and proposed rules on October 9 that would explicitly classify event contracts as swaps. Neither action settles Utah’s latest lawsuit.
A $394 Billion Market at the Center of the Dispute
Artemis data released as of October 21 put trailing-year prediction-market trading volume at $394.2 billion. Kalshi accounted for $309.8 billion of that total, while Polymarket represented $84.4 billion. Sports contracts generated $169.9 billion, or 43.1% of all trading activity.
These figures measure trading volume rather than revenue, but they show how much market activity depends on the legal status of sports-related contracts. A broad shift in how states or federal regulators classify those contracts could therefore affect a significant part of the prediction-market sector.
Regulatory Approaches Diverge Internationally
The legal divide extends beyond the United States. In July, the European Securities and Markets Authority warned that event contracts qualifying as financial instruments would fall under European binary-options restrictions. Tiger Research said much of Asia continues to treat prediction markets as gambling, potentially preventing the region from attracting capital and oversight associated with regulated markets.
Utah’s case now raises a wider question: whether states can regulate not only prediction exchanges but also the firms that keep those markets operating. The answer could influence market-making participation, liquidity and the location of trading activity, although the current claims have not established liability for either company.
Why This Matters
The central issue is whether CFTC oversight of Kalshi’s designated contract market leaves state gambling enforcement intact. Utah’s position, Kalshi’s federal-preemption argument and the conflicting appellate decisions leave no single governing rule across the country. The CFTC’s proposed rules and lawsuit against three states demonstrate the breadth of the dispute, but they do not resolve Utah’s case.
The stakes are particularly significant because sports contracts represent 43.1% of the prediction-market trading volume reported by Artemis. If states can impose liability on market makers and other supporting companies, operators and liquidity providers could face wider legal exposure. That possibility could affect trading costs and market structure, but there is no evidence yet of a major withdrawal from Kalshi.
Frequently Asked Questions
Has Kalshi been found liable for illegal gambling in Utah?
No. A Utah court rejected Kalshi’s claim that federal law superseded state gambling laws, but the reported claims remain unverified and neither Kalshi nor Polymarket has been shown to be liable.
How much money has Utah collected from Kalshi accounts?
Utah estimates that Kalshi received between $30.6 million and $61.2 million in fees from accounts in the state. Attorney General Derek Brown is seeking the return of money collected by Kalshi alongside an end to the allegedly illegal gambling.
What remains unresolved in the federal-state regulatory conflict?
Courts have sided with both Kalshi and state regulators in different cases. The CFTC’s April 2 lawsuit against three states and its October 9 proposed rules do not settle Utah’s case, leaving the reach of state gambling laws against federally regulated event contracts unresolved.
