Federal Judge Rules Kalshi is Subject to Utah Gambling Laws

The final weeks of summer have not been kind to Kalshi.

This week, a Utah District Court ruled that the state’s strict gambling laws can be applied to the operator’s massive sports prediction market platform. It was the conclusion of a lawsuit brought by Kalshi against the state, arguing that it is a federally registered exchange. 

As a result, Kalshi will be forced to geofence the state or face third-degree felony charges.  

“You can’t rebrand illegal gambling as a federal commodity, and today a federal judge agreed with us,” Utah Attorney General Derek Brown shared in a press release. “Kalshi bet that clever branding would beat Utah law. Kalshi lost, and Utah won. Utah’s constitution bans gambling to protect Utah families, and my office will enforce that ban. Gambling is gambling no matter what any company calls it.”

The prediction market giant is expected to appeal the ruling, continuing to assert its sports markets aren’t a form of gambling.

Utah’s constitution bans all forms of gambling in the conservative state. This played a factor in the lawsuit, as Kalshi couldn’t argue alternative motives for the state’s opposition.

A Troubling Precedent for Kalshi

Kalshi will have a chance to appeal the decision in Utah, but the loss further establishes a troubling precedent for the prediction market operator. 

At the heart of Kalshi’s defense is the idea that prediction markets are protected as “swaps” under the Commodity Exchange Act (CEA). It has argued that this federal law preempts state gambling laws, putting it under the sole regulatory authority of the Commodity Futures Trading Commission. The regulator has been an ally to Kalshi in this fight, keeping it available in most US markets.

Back in May, a Wisconsin judge delivered a massive blow to that defense. US District Judge William M. Conley ruled that Kalshi was subject to the state’s gambling laws. 

Unlike previous rulings involving prediction markets, the judge accepted Kalshi’s sports contracts as a form of swaps. However, he ruled that the CEA isn’t meant to preempt state law, allowing Wisconsin to enforce its gambling laws.

Since then, similar rulings have been delivered in Michigan, Nevada, New York, Washington, and now Utah.