Bet or Contract? Commonwealth v. KalshiEx and the Future of Regulating Prediction Markets
Kalshi is a nationwide prediction market platform that offers event contracts to users. Courts and regulators often define event contracts as “derivative financial instruments where buyers make binary predictions about future events,” with payouts determined by whether the predicted event occurs. [1] Kalshi's contracts are federally regulated under the Commodity Exchange Act (CEA), which Kalshi argues preempts certain forms of state regulation and taxation. [2] In September 2025, Massachusetts Attorney General Andrea Campbell filed suit against the platform, alleging that Kalshi used its event contracts as a means of facilitating a sports wagering network operating without a license from the Massachusetts Gaming Commission, in violation of state law. [3] Campbell alleges in Commonwealth v. KalshiEx that Kalshi’s platform creates increased risks to the Commonwealth with “significant public health consequences” and “disastrous financial losses,” without following the Commonwealth’s strict sport wagering guidelines. [4] Kalshi has, in turn, argued that the federal regulation of its platform by the Commodity Futures Trading Commission (CFTC) supersedes state law and has thus filed a motion to dismiss on federal preemption grounds. [5] With Kalshi’s valuation at $11 billion, Commonwealth v. KalshiEx illustrates the implications of ongoing litigation surrounding state gambling limitations. [6] This article will examine whether Commonwealth v. KalshiEx represents the next doctrinal debate in defining boundaries between state gambling authority and federally regulated derivative markets, revealing the unresolved classification dilemma of whether sports prediction markets are financial instruments regulated by federal agencies or wagering traditionally subject to state policing power.
Following the 2018 Murphy v. NCAA ruling, states regained the opportunity to regulate sports wagering after the Supreme Court struck down PASPA, which had previously barred most state-authorized sports gambling. [7] While Murphy held that Congress may regulate sports gambling directly, it could not commandeer the states by preventing legislatures from passing laws authorizing sports betting. [8] After PASPA was struck down, states began passing laws permitting sports gambling and establishing regulatory commissions. In 2022, Massachusetts legalized sports gambling through the Massachusetts Sports Wagering Law. [9] The Commonwealth contends that Kalshi’s sports prediction market violates the state law, which defines “sports wagering” as “the business of accepting wagers on sporting events or portions of sporting events.” [10] The core issue is whether Kalshi's contracts fall within this definition, thereby supporting the Commonwealth’s claim that the platform must comply with the Massachusetts Gaming Commission's rules. In response, Kalshi argues that the law is preempted by the CEA, thus justifying its market operations. Subsequently, in January 2026, a court granted the Commonwealth’s motion for a preliminary injunction and denied Kalshi’s motion to dismiss, blocking all of Kalshi’s sports-related operations in the Commonwealth for the duration of the case. [11] This was altered when, on February 17, 2026, the Massachusetts Appeals Court stayed the injunction, allowing Kalshi to operate in the state while the court conducted an expedited review. [12] This decision raises questions, ultimately suggesting that the preemption question remains contested and that the overall enforceability of state regulation over platforms like Kalshi is uncertain.
Kalshi does not argue that its platform falls within the definition of sports wagering, nor does it challenge the Commonwealth's claim that Kalshi operates within Massachusetts. [13] Instead, Kalshi argues that the Massachusetts Sports Wagering Law is preempted by federal law, which Judge Christopher K. Barry-Smith ultimately rejected. [14] Judge Barry-Smith analyzed Kalshi’s assertion of preemption through the lens of the Supremacy Clause. He outlined the two types of preemption at play in this case: field preemption and conflict preemption. Judge Barry-Smith disagrees with Kalshi’s field preemption argument due to flaws within their claim that the Massachusetts Sports Wagering Law is field preempted by the CEA. The court found that Kalshi did not identify where Congress clearly and manifestly strips states of their gambling authority, as required for established field preemption. [15] Judge Barry-Smith cites precedent from a 2025 Kalshi case in Maryland, KalshiEx v. Martin, in which a judge ruled that Congress did not give a clear and manifest purpose in the CEA to strip states of their gambling-policing authority. [16] The CEA’s savings clause further supports the lack of preemption, as 7 U.S.C. § 2(a)(1)(A) provides that nothing in the section, including the derivatives utilized by Kalshi, should supersede or limit the jurisdiction of the courts of any state. [17] As for Kalshi’s claims to conflict preemption, Judge Barry-Smith rejected this argument. A state law may be preempted when it is impossible for a party to comply with both state and federal law or when a law is an obstacle to a Congressional objective; both cases are inapplicable to Commonwealth v. KalshiEx. The Massachusetts Sports Wagering Law does not directly interfere with the CEA, nor does it interfere with Congressional purposes for the CFTC, as claimed by Judge Barry-Smith. [18] The Preliminary Injunction Order concluded that Kalshi fails “to establish that the CEA preempts the Sports Wagering Law,” and that “the Commonwealth is likely to succeed” in enforcing compliance with licensure. [19]
The preliminary injunction permits the state to enforce its regulations upon Kalshi while litigation proceeds. Murphy had redirected sports gambling authority back to the states, which had historically held gaming policing power, and the operation of prediction market platforms like Kalshi has been a recent development for the CFTC. The CFTC initially expressed concerns about these new platforms, leading to KalshiEx v. CFTC, which followed Kalshi's offering of event contracts on the results of the 2024 U.S. Elections. [20] The CEA includes a Special Rule that allows the CFTC to prohibit event contracts that conflict with the public interest, including gaming. [21] The court ruled that the election-related contracts did not fall within the specific definition of gaming, which was found to be “an act of playing a game,” as an election is not reasonably considered a game. [22] This reflects the ongoing debate regarding whether the derivatives utilized by Kalshi should be classified as gambling. Unlike elections, sporting events more closely fit the definition in which the court found for gaming, making the CFTC’s exception for gaming more plausibly applicable for sports prediction markets than in the election context. Thus, Commonwealth v. KalshiEx may further clarify whether sports prediction markets fall within the CEA’s notion of gaming, a classification that would allow the CFTC to prohibit sports-related event contracts.
The outcome of this case may have implications for the sports betting industry and for future interpretations of the CEA. A ruling for the Commonwealth could support the application of state gambling regulations to prediction markets, whereas a ruling for Kalshi may reinforce arguments that prediction markets fall outside traditional state gambling oversight. Kalshi’s business model relies heavily on its sports prediction markets, with $871 million traded on the site on Super Bowl Sunday alone, surpassing the volume of top traditional online sportsbook platforms. [23] Kalshi’s platform currently operates without state-level wagering regulation, enabling it to operate in all 50 states. This enables Kalshi to operate in states where sportsbook sites like DraftKings and FanDuel are deemed illegal under state law. [24] If Kalshi were found to be bound by state regulation, the sports gaming industry would change, as Kalshi would no longer be able to operate in states where sports wagering is illegal, shifting the multi-billion-dollar sports gambling industry. This could allow Massachusetts and potentially other states to impose and collect taxes on sports wagering conducted through such platforms. Ultimately, the outcome of this case may define the boundary between federally regulated financial derivatives and state gambling regulations, with significant consequences for the future of the sports wagering industry nationwide. [25]
"Place Your Bets: US District Courts are Split on Whether the Commodity Exchange Act Preempts State Gaming Laws with Respect to Sports Event Contracts." National Law Review (2025). Gale Academic OneFile. https://link-gale-com.ezproxy.bu.edu/apps/doc/A851821156/AONE?u=mlin_b_bumml&sid=bookmark-AONE&xid=eee84f8c.
Blatt, Ben, and Amy Fan. "Sports Bets, by Another Name, Skirt State Bans." New York Times, October 8, 2025, A1. Gale Academic OneFile. https://link-gale-com.ezproxy.bu.edu/apps/doc/A858613261/AONE?u=mlin_b_bumml&sid=bookmark-AONE&xid=db9111c6.
Commonwealth of Massachusetts v. KalshiEX LLC, No. 2584CV02525 (Mass. Super. Ct. Sept. 12, 2025) (Complaint).
Ibid.
Ibid.
Hamel, Alain. 2025. “Kalshi, a Prediction Market, Raises $1 Billion in a New Round.” The New York Times. https://www.nytimes.com/2025/12/02/business/dealbook/kalshi-prediction-market-billion.html.
Holden, John T. "Regulating Sports Wagering." Iowa Law Review 105, no. 2 (2020): 575+. Gale OneFile: Business. https://link-gale-com.ezproxy.bu.edu/apps/doc/A617620938/ITBC?u=mlin_b_bumml&sid=bookmark-ITBC&xid=09a04011.
Murphy v. Nat’l Collegiate Athletic Ass’n, No. 16-476 (U.S. May 14, 2018) (Opinion)
Mass. Gen. Laws ch. 23N
Ibid, § 3.
Commonwealth of Massachusetts v. KalshiEX LLC, No. 2584CV02525 (Mass. Super. Ct. Jan. 20, 2026) (Memorandum of Decision and Order on Plaintiff’s Motion for a Preliminary Injunction and Defendant’s Motion to Dismiss).
Commonwealth v. KalshiEX LLC, No. 2026-J-0143 (Mass. App. Ct. Feb. 17, 2026) (Notice of Order).
Massachusetts v. KalshiEx, (Mass. Super. Ct. Jan. 20, 2026).
Ibid.
Ibid.
Ibid.
7 U.S.C. § 2(a)(1)(A).
Massachusetts v. KalshiEx, (Mass. Super. Ct. Jan. 20, 2026).
Ibid.
KalshiEx LLC v. Commodity Futures Trading Commission, No. 24-5205 (D.C. Cir. Oct. 2, 2024) (Order Denying Stay Pending Appeal).
Ibid.
Ibid.
Lichtenberg, Nick. 2026. “America’s new love affair with gambling drives Kalshi to $871 million haul on Super Bowl Sunday.” Fortune. https://fortune.com/2026/02/10/kalshi-super-bowl-sunday-871-million-sports-gambling-michael-lewis-warning/.
Ibid.
"Prediction Markets v. State Gaming Laws: The Kalshi Litigation Gamble." National Law Review (2026). Gale Academic OneFile. https://link-gale-com.ezproxy.bu.edu/apps/doc/A874750609/AONE?u=mlin_b_bumml&sid=bookmark-AONE&xid=9a709bdd.