Montana sued by Kalshi for attempting to regulate event contracts
Prediction market Kalshi has filed a lawsuit in a Montana federal court, attempting to block state officials from enforcing state-level gambling regulations against its event contracts.
The suit named Montana Attorney General Austin Knudsen and other state officials as defendants after they sent Kalshi a cease-and-desist letter last year claiming its activities constituted illegal gambling under Montana law.
The case, Kalshi v. Knudsen et al., was assigned to US Magistrate Judge John Johnston.
Kalshi argues that the Commodity Exchange Act grants the Commodity Futures Trading Commission exclusive jurisdiction over US derivatives markets, pre-empting state enforcement of gambling laws against its products.
The operator added that event contracts were also a form of derivative contract which determine their value from market forces, distinguishing them from traditional fixed-odds sports wagering.
“Because traders do not take a position against the exchange itself, traders’ ability to hedge risk requires counterparties willing to assume risk in the hope of seeing a return,” the complaint read.
The filing followed recent legal wins for Kalshi at the US Court of Appeals for the Third Circuit in New Jersey and in a federal district court in Arizona. States countered that the products functionally constituted sports wagering regardless of their classification.
According to Sportico, as of Monday evening, Knudsen’s office had not yet been served with Kalshi’s complaint.
Charlotte Capewell brings her passion for storytelling and expertise in writing, researching, and the gambling industry to every article she writes. Her specialties include the US gambling industry, regulator legislation, igaming, and more.
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The Backstory
How a state letter became a test of federal preemption
Kalshi’s suit in Montana arrives after a cascade of clashes between the event-contract exchange and state gambling regulators nationwide. The company argues its markets are derivatives overseen by the Commodity Futures Trading Commission, not wagers regulated by state gaming authorities. That federal-versus-state framing has become the central fault line. Similar disputes in other jurisdictions have pushed federal judges to weigh whether state gambling laws can reach CFTC-supervised platforms offering contracts on sports, politics and culture.
In recent months, Kalshi has pursued a litigation-first strategy to stop state enforcement while courts hash out the limits of preemption under the Commodity Exchange Act. The company has said the products function more like financial instruments than fixed-odds bets because traders take positions against each other, not the house, and prices move with market demand. States counter that sports-linked markets are sports wagering in substance, whatever the label. The Montana case reprises that argument, with higher stakes after a split among courts and regulators.
The outcome will feed into a broader answer to a narrow question: when does trading end and gambling begin? That determination could dictate whether event contracts must obtain state gaming licenses, pay tax and comply with consumer protections akin to sportsbooks, or remain within a federal market structure built for commodities and swaps.
A patchwork of cease-and-desist orders meets courtroom pushback
Montana is not first to test the line. In Tennessee, a federal judge issued a temporary order blocking the state’s attempt to force Kalshi to stop offering sports-related markets and refund deposits, after regulators warned of fines and possible criminal referrals. The order, which followed cease-and-desist letters sent to multiple platforms, underscored that a peer-to-peer futures model raises different questions than a sportsbook would. A preliminary injunction hearing was set to probe whether federal oversight forecloses state action. See coverage of that ruling here: federal judge blocks Tennessee’s attempt to halt Kalshi sports event contracts.
Maryland followed a similar path, prompting Kalshi to sue the state’s lottery and gaming commission after it ordered a halt to operations. The complaint there argues Maryland’s action is both field- and conflict-preempted by federal law governing designated contract markets. Kalshi also sought preliminary relief to keep operating while the case proceeds, citing a recent win that, in the company’s telling, clarifies the legal terrain. Read more: Prediction markets platform Kalshi files lawsuit in Maryland.
Other states have moved in parallel. Regulators in New Jersey, Connecticut, New York, Ohio, Massachusetts and Nevada have each examined whether sports-event contracts constitute wagering without a license. The disparate orders and advisories have created a patchwork in which platforms face different rules depending on the state line, inviting forum-by-forum litigation and adding urgency for an appellate roadmap.
The Third Circuit steps in, but not the final word
Kalshi notched a key appellate win in New Jersey, where a divided panel of the U.S. Court of Appeals for the Third Circuit said the state could not block the company from offering event-based contracts to residents. In a two-to-one decision, the court held that the Commodity Exchange Act gives the CFTC exclusive oversight over Kalshi’s markets because they trade on a federally regulated exchange. That shield, the majority said, prevents states from enforcing gambling laws against those products. The dissent found the contracts “virtually indistinguishable” from sportsbook wagers, highlighting the line-drawing that still divides jurists. The decision is summarized here: Federal court rules New Jersey can’t regulate prediction markets.
The Third Circuit ruling supplied momentum for Kalshi’s preemption theory and emboldened additional challenges. But it is not binding in all jurisdictions and arrived alongside contrary instincts among some state officials and judges. As other cases move through district courts, and potentially to different appellate circuits, the legal map could remain uneven until the Supreme Court or Congress resolves the scope of federal authority over event markets tied to sports.
For Montana, the New Jersey precedent functions as both a playbook and a pressure point. State lawyers will likely argue the local gambling code applies to in-state conduct that looks and feels like sports betting, while Kalshi will point to the federal exchange regime and the need for a single rulebook for nationally accessible markets.
New York emerges as a regulatory battleground
New York has become a pivot for the industry, given its scale and the political salience of online wagering. Lawmakers have introduced bills to create licenses and age restrictions for prediction platforms, a move supporters frame as necessary in the absence of clear federal guidance. Kalshi, in turn, increased its presence in Albany, registering to lobby on financial services and prediction market legislation as proposals advanced. That push is detailed here: Kalshi lobbying in New York as state lawmakers seek to regulate event contracts.
The legislative debate ran alongside direct confrontation with the state’s gaming regulator. Kalshi sued the New York State Gaming Commission, arguing the agency’s enforcement overreach intrudes on CFTC jurisdiction and improperly tethers federally supervised event contracts to gambling statutes. Observers say the case could ripple across fintech and brokerage models that blur lines with gaming, from prediction markets to retail trading apps. Read the lawsuit background here: Kalshi sues New York regulators over event contracts rules.
New York’s stakes are heightened by its position as the largest U.S. sports betting market and by national attention on guardrails for emerging products. The state’s posture has also influenced enforcement elsewhere. A recent Nevada notice, for instance, reiterated that sports event contracts are wagers requiring a gaming license, underscoring the divergence with the federal-derivatives view. Even as Kalshi and rival Polymarket announced a multi-year data partnership with the NHL, regulators have signaled that rights deals do not settle questions of legality.
What’s at risk for platforms, regulators and consumers
The legal trajectory affects more than one company. A ruling that cements federal preemption could shield event-contract markets from state-by-state gambling rules, allowing national scale under a CFTC umbrella. That would pressure states to work through federal channels or seek congressional changes if they want a say. A contrary result would force platforms to obtain state licenses, pay taxes and adapt compliance programs that resemble sportsbooks, or to geofence aggressively, reducing liquidity and utility for hedging.
For regulators, the cases test institutional lines. The CFTC has asserted authority to police insider trading and market integrity on prediction platforms, while state agencies emphasize consumer protections tailored to gambling risks. Courts are being asked to reconcile those mandates when the underlying product references sports outcomes, a domain states traditionally regulate.
Consumers sit at the intersection. Preemption may deliver uniform rules and deeper liquidity, potentially lowering costs and improving price discovery for hedgers and speculators. State control may provide localized safeguards but could fragment access and introduce compliance friction. Montana’s dispute plugs directly into that calculus. Its resolution will signal whether a state can unilaterally classify federally supervised event contracts as illegal gambling, or whether the CFTC’s regime occupies the field for these products.
Whichever way the court moves, the case is another step in a fast-building body of law. As Tennessee’s injunction, Maryland’s lawsuit and the Third Circuit’s ruling show, the answer is evolving in real time. The Montana filing ensures the next chapter will test the reach of federal commodities law against the breadth of state gambling codes in one more venue where the lines are still being drawn.
