Kalshi urges judge to block Iowa from regulating prediction market

Kalshi argues the Commodity Exchange Act gives exclusive jurisdiction to the U.S. Commodity Futures Trading Commission to regulate the sort of prediction market exchange Kalshi operates.DES MOINES, Iowa (CN) — Prediction market platform Kalshi told a federal judge Friday Iowa should be permanently blocked from regulating the business under state gambling laws because the federal Commodity Futures Trading Commission (CFTC) has exclusive regulatory jurisdiction that preempts state action.Kalshi, a derivatives exchange and prediction market platform where participants predict and then bet on the outcomes of future events with payouts determined by the outcome of the predicted event, characterizes its exchange as operating in the same way as any other federally regulated derivatives market where individuals can buy and sell contracts at changing prices, often to hedge risk.Iowa, however, says Kalshi also operates a sports-betting platform that offers sports event contracts that act like sports gambling in violation of Iowa’s gambling laws. While the state has not threatened to enforce its gambling laws against Kalshi, it has not ruled out any such enforcement in the future.Thus, Kalshi filed a pre-enforcement suit against Iowa in U.S. District Court for the Southern District of Iowa in March seeking to block Iowa from taking such action, saying federal law preempts Iowa laws that might apply to Kalshi’s platform.Kalshi attorney Grant Mainland of New York’s Milbank LLP told U.S. District Judge Stephen Locher the question before the court at Friday’s hearing is whether Iowa is preempted by federal law from enforcing the state’s gambling laws.“The answer is unquestionably yes,” Mainland said, pointing to the 1936 Commodity Exchange Act that gives exclusive jurisdiction to the U.S. Commodity Futures Trading Commission to regulate the sort of prediction market exchange Kalshi operates. “Exclusive means exclusive, your honor,” Mainland said.Locher, a Joe Biden appointee, asked whether sports gambling operations might adopt the Kalshi model to escape state gambling regulators.Mainland said the two business models are fundamentally different. Event contracts are traded on an exchange where prices are determined by market forces and there is no “house” that sets the odds in its favor in the case of sportsbooks.Locher noted Congress left gambling regulation to the states and asked Mainland whether the CFTC protects against the problems states confront with gambling. Mainland said Kalshi has mechanisms in place to deal with issues associated with gambling, but the CFTC has never said sports betting is not in the public interest and gave it exclusive jurisdiction to make such decisions.Iowa Assistant Solicitor General Catherine Frappier urged the judge to deny Kalshi’s bid for an injunction, which she characterized as “seeking sweeping relief from each and every section of nine chapters of the Iowa Code” dealing with gambling regulation.A question the judge and both parties wrestled with Friday is whether Kalshi has standing since there is no explicit threat by Iowa to enforce its gambling laws against the company.Locher put the question to Frappier bluntly: “Does the Attorney General’s Office see Kalshi as engaged in illegal sports gambling?”Frappier replied by saying the Attorney General’s Office has not taken a position and it has said it would hold off any decision while this case is pending. But it has not ruled out enforcement in the future.In its brief filed with the court in support of its injunction, Kalish said it “offers event contracts related to commodities, economics, finance, health, cryptocurrencies, and popular culture. For example, Kalshi’s platform currently allows users to trade on the prices of physical commodities such as oil and gold, on whether India will meet its 2030 climate goals, and on whether the market share for electric vehicles will exceed 50% in 2030.”Kalshi says its event contracts are “swaps” as defined by the Commodity Exchange Act (CEA) in that they provide for payment based on the “occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence” as stated in the federal statute.“All of Kalshi’s contracts fit comfortably within this definition,” Kalshi says in its brief. And the federal regulations preempt regulation by the states. “Congress has preempted the field of regulating trading on DCMs [derivative commodity markets], both expressly in the text of the CEA and implicitly by creating a comprehensive structure for regulating DCMs that leaves no room for state regulation.”Iowa argues what Kalshi offers is sports betting that amounts to the sort of gambling Iowa has long regulated.“In 2025, Kalshi began offering what it calls ‘sports event contracts’,” the state says in its brief. “And those contracts operate like sports bets: Participants — including those with nothing at stake in the sporting event and therefore no financial risk to hedge — can purchase either a ‘yes’ or ‘no’ position on any number of sports-related questions, from whether a team will win a particular game to how many points a player will score or even whether the broadcasters will mention particular words or phrases. Participants who pick correctly get paid out. Participants who pick wrong lose.”Amicus curiae briefs in support of Iowa were filed by the American Gaming Association, whose members include licensed gaming operators, and the Indian Gaming Association along with 29 federally recognized Indian tribes.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads