Kalshi CEO claims state regulation of prediction markets will only drive them out

Dig Deeper

The Backstory

Federal markets meet state gambling law

Kalshi’s latest argument that state-by-state regulation could push prediction markets offshore is the clearest expression yet of a legal and political fight that has been building for months. The company has framed its sports-event contracts as federally regulated financial products, overseen by the Commodity Futures Trading Commission, rather than wagers subject to state gambling laws. State regulators, attorneys general and gaming lawmakers have countered that the contracts look and function like sports betting and should not be allowed to bypass licensing systems created after the expansion of legal sports wagering.

The conflict is not confined to one enforcement action or one state. It now spans federal appeals courts, state gambling agencies, attorneys general, Congress, the CFTC and potentially the Supreme Court. Kalshi and other prediction-market operators say a uniform federal regime is necessary because event contracts trade across state lines and are structured as derivatives. States argue that allowing sports contracts under federal commodities law would undermine gambling statutes, consumer protections and tax systems built around licensed operators.

That divide explains why Mansour’s comments at DC Fintech Week focused less on a technical question of preemption and more on the future location of the industry. His claim that the choice is between a U.S. market and offshore activity reflects a broader strategy: cast prediction markets as an emerging financial sector that needs national rules, not as gambling products seeking a regulatory loophole.

Appeals courts have split the map

The legal backdrop has become increasingly uneven. Kalshi recently suffered a major setback when the 6th U.S. Circuit Court of Appeals ruled that Ohio and Tennessee could enforce gambling laws against the company. In that decision, the appeals court rejected Kalshi’s bid to block state regulation and said the platform had not shown that its sports-event contracts were shielded from state enforcement by federal commodities law. The court also said that even if the products qualified as swaps, the Commodity Exchange Act would not necessarily prevent states from applying gambling rules.

The ruling combined disputes from Ohio and Tennessee. Ohio regulators had accused Kalshi of offering unlicensed sports betting and issued a $5 million fine. Tennessee’s attorney general challenged an earlier order that temporarily blocked state enforcement, arguing that the contracts functioned as sports bets and should be subject to licensing conditions. For state regulators, the 6th Circuit decision strengthened the argument that federal designation does not automatically displace state police powers over gambling.

But the case law is not uniform. The 9th Circuit reached a similar conclusion in August, backing state authority over Kalshi’s sports-event contracts. The 3rd Circuit, however, took a different view in April, allowing Kalshi to keep operating in New Jersey while litigation continued and finding the company was likely to succeed on its argument that federal law preempts state regulation. That split has become central to Kalshi’s public case. The company has argued that markets cannot function when courts and regulators disagree across state lines on the same products.

New Jersey pushed the fight toward Washington

New Jersey has become one of the most important venues in the national battle. After the 3rd Circuit sided with Kalshi at an early stage, state officials took the dispute to the Supreme Court. The state argues that sports-event contracts should be overseen by state gambling regulators and do not qualify as financial swaps in the way Kalshi claims. The petition asks the justices to resolve a question with implications far beyond one company: whether federally registered prediction markets can offer sports contracts nationwide despite state gambling prohibitions.

Gaming-focused lawmakers have urged the high court to step in. The National Council of Legislators from Gaming States filed an amicus brief supporting New Jersey’s request for Supreme Court review, warning that a decision insulating prediction markets from state gambling law could disrupt existing regulatory frameworks. The group’s position reflected a concern shared by many state officials: if Kalshi can characterize sports outcomes as federally regulated event contracts, other gambling-adjacent businesses may try to use similar structures to avoid state oversight.

The dispute has also drawn wider political attention. Democrats on the Senate Banking Committee have called for a congressional hearing on prediction markets, while Senate Banking Committee Republicans met privately with Mansour. Those developments show that the issue has moved beyond administrative review at the CFTC. It is now part of a broader debate over who should govern new financialized products tied to politics, sports and culture.

States escalate from fines to criminal charges

While much of the fight has played out through civil enforcement and injunctions, Arizona marked a sharper escalation. Attorney General Kris Mayes filed criminal charges against Kalshi, alleging the company offered users the chance to wager on events in the state, including political and sporting outcomes. Election betting is illegal in Arizona, making political-event contracts especially sensitive there.

Mansour responded by saying Arizona overstepped by pressing criminal charges, arguing the state had turned a regulatory dispute into a criminal matter instead of allowing the federal courts to determine the scope of commodities law. His reaction fit Kalshi’s larger position that prediction markets should not be treated as illegal gambling operations when they operate through a federally regulated exchange model.

For states, however, the Arizona action underscored the enforcement dilemma. If a platform offers contracts that mirror bets prohibited under state law, regulators argue they cannot wait for a national resolution while the products remain available to residents. Criminal charges also raise the stakes for operators, employees and investors because the consequences can extend beyond licensing disputes or monetary penalties.

The escalation has helped make prediction markets a test case for regulatory boundaries in the post-sports-betting era. States spent years building legal sports wagering regimes, often with tax rates, integrity monitoring, responsible-gambling rules and licensing requirements. Prediction markets threaten to unsettle that system if they can offer economically similar products without entering the same regulatory framework.

Lobbying reflects the scale of the threat

Kalshi has not relied solely on litigation. The company and rival prediction market Polymarket have poured money into lobbying and political efforts as state resistance has intensified. Reports based on OpenSecrets data show Kalshi leading lobbying efforts against state regulation, including hiring lobbyists in 41 states and contributing to attorney general and governors’ associations from both parties.

The focus on attorneys general is strategic. State AGs have been among the most active opponents of federally overseen sports-event contracts. In July, a bipartisan coalition of 44 attorneys general, led by Nevada Attorney General Aaron Ford, signed a letter opposing CFTC regulation of prediction markets on the grounds that the agency lacked authority over sports-event contracts. New Jersey later drew support from 39 state attorneys general and the NFL in its Supreme Court push, reinforcing the breadth of opposition.

Kalshi’s political spending signals that the company views the threat as existential. If each state can apply its own gambling rules, the company may need licenses in multiple jurisdictions, withdraw products from states or limit offerings to avoid enforcement. If federal preemption prevails, Kalshi could preserve a national model with fewer state-level barriers. That binary outcome explains why both sides have invested heavily in shaping the legal narrative.

Product expansion adds pressure on regulators

The regulatory dispute has unfolded as Kalshi seeks to expand beyond fully collateralized event contracts. The company asked the CFTC to approve margin trading for certain contracts, a move that would allow eligible traders to use borrowed funds on categories such as economic, financial and political markets. Kalshi said margin would not apply to sports, culture or “mention” markets, but the request still highlighted how prediction markets are trying to move closer to traditional derivatives infrastructure.

The timing matters because regulators are already scrutinizing market design. The CFTC issued an advisory on “mention” markets, warning that contracts based on whether a person says certain words, attends an event or interacts with someone may present heightened manipulation risks. The agency’s advisory showed that even within the federal framework Kalshi favors, regulators remain concerned about settlement integrity and the ability of individuals to influence outcomes.

Consumer-protection groups have also entered the debate. The National Council on Problem Gambling has called for safeguards such as age verification, self-exclusion, risk disclosures and responsible-engagement tools as prediction markets grow. Those concerns align more closely with gambling regulation than with traditional commodities oversight, adding another layer to the jurisdictional dispute.

That is the context for Mansour’s argument that state regulation could drive the sector overseas. Kalshi is trying to convince courts, regulators and lawmakers that federally supervised prediction markets can be safer than offshore alternatives. States are trying to preserve their authority before a new category of sports-linked products scales beyond their reach. The Supreme Court’s next move could determine whether the industry develops as a national financial market, a state-regulated gambling product or something still unresolved between the two.