FEDERAL VS STATE REGULATION
in the United States. What the situation with Kalshi does is go back to the legal underpinning of futures trading which recognized that it resembled gambling. Kalshi started offering contracts on the outcome of sports events at the start of 2025 and handled US$27 million in wagers on February’s Super Bowl. Despite being a small handle when compared to the estimated US$1.5 billion wagered through licensed sportsbooks, Kalshi’s activities drew the attention of several state gambling regulators, resulting in the issuance of cease and desist notices. In response, Kalshi filed suit against regulators in New Jersey, Nevada and Maryland, securing preliminary victories in New Jersey and Nevada. While neither order resolved the underlying legal issues, they were seen as a significant indicator as to Kalshi’s likelihood of future success, and potentially persuasive on future courts facing the same questions. New Jersey appealed the preliminary relief to the Third Circuit Court of Appeals. Meanwhile, the preliminary rulings allowed Kalshi to continue to trade. All Eyes on Maryland Kalshi initiated similar legal action against the Maryland Lottery and Gaming Control Commission, but anyone expecting another quick success was disappointed. Maryland authorities alleged that Kalshi’s sporting event-based contracts violated state gambling laws. Kalshi, as it has in each state, countered that its operations fall under federal jurisdiction as a CFTC-regulated exchange and argued that Maryland’s enforcement authority is preempted by federal law. Kalshi cited to the Dodd-Frank Act and the Commodity Exchange Act (CEA) for the basis of their position. District Judge Adam B. Abelson denied Kalshi’s preliminary request for relief, marking the first significant legal roadblock faced by Kalshi in its sports betting endeavors and capturing the attention of industry observers and lawyers alike. The Maryland Court delivered a blow to Kalshi’s preemption arguments, ruling that federal commodities law does not strip states of their authority to regulate gambling even when sports wagering, through what Kalshi describes as “sports- event contracts,” is conducted through CFTC-approved Designated Contract Markets. While the court did not rule on the arguments themselves, crucially, it enjoined Kalshi’s
sports-event contract trading in the state of Maryland whilst the case progresses. The Court determined that while the Dodd-Frank Act and the Commodity Exchange Act (CEA) did have a clear intention to preempt at least some state laws, that is not where the applicable preemption analysis ends, despite what Kalshi would prefer and in contrast to the New Jersey and Nevada district courts examining the same issue. Instead, the Maryland Court reasoned that it must determine if the “field” Congress intended to occupy through these acts included gambling. Applying the presumption against preemption in areas of traditional state regulation, the Court found that Congress did not demonstrate a “clear and manifest purpose” to preempt state gambling laws when it enacted the Dodd- Frank Act, despite the CEA’s general preemptive scope over commodities trading. The analysis focused on several key factors undermining Kalshi’s position: the CEA’s Special Rule expressly preserving state authority to determine what conduct is unlawful, the express preemption clauses in the CEA not encompassing Kalshi’s operations, and Congress showing no intent to override then-existing federal gambling statutes like the Wire Act, Indian Gaming Regulatory Act (IGRA), or Professional and Amateur Sports Protection Act (PASPA) (since struck down but in effect at the time) when drafting the amendments. The Court also noted that contemporary legislative statements suggested lawmakers viewed sports-event contracts as lacking commercial purpose and were concerned about potential gambling through derivatives markets. The Court also felt that while the “savings clause” in the CEA’s exclusive jurisdiction provision cuts both ways, such ambiguity cuts against finding for field preemption as these types of clauses generally negate an inference that Congress intended to preempt. Split Decision Shortly after receiving the Maryland ruling, Kashi filed an appeal. On the same day, it also moved for summary judgment in the Nevada District Court matter, seeking to capitalize on a favorable ruling on its preliminary request for injunctive relief. These actions, when combined with the New Jersey appeal, set the stage for potential escalation to the US Supreme Court.
IMGL MAGAZINE | SEPTEMBER 2025
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