The Massachusetts Attorney General has sued prediction market Kalshi, asserting its sports event contracts violate state wagering laws, potentially impacting the platform's operations and sparking regulatory uncertainty for prediction markets.

Executive Summary

Massachusetts Attorney General Andrea Joy Campbell has filed a lawsuit against Kalshi, a federally regulated prediction market exchange, alleging its sports event contracts violate state sports wagering laws and require licensing. The legal action claims Kalshi's contracts, structured as binary options on sports outcomes, operate similarly to licensed sports wagering products offered by entities such as FanDuel. This move follows allegations that Kalshi employs behavioral design mechanisms to encourage impulsive engagement. Kalshi maintains its platform is federally-regulated and transparent, stating it will defend its operations against the allegations.

The Event in Detail

The lawsuit by Massachusetts Attorney General Andrea Joy Campbell contends that Kalshi's offerings constitute sports wagering under state law, necessitating a state-issued license. The core argument focuses on the financial mechanics of Kalshi's contracts, which enable users to trade on the outcome of sports events. The Attorney General’s filing specifically mentions that the platform highlights potential payouts in a manner that might obscure risk, thereby influencing user behavior. Kalshi, in response, has asserted that its event contracts fall under the exclusive regulatory authority of the U.S. Commodity Futures Trading Commission (CFTC), citing its status as a federally-regulated event contracts exchange. This position is consistent with a late 2024 federal court ruling that favored Kalshi against the CFTC regarding political event contracts, a decision that enabled the platform to operate nationwide. Following that ruling, Kalshi secured a $100 million funding round, achieving a $1 billion post-money valuation in early 2025, with its annual trading volume surging to $1.97 billion.

Market Implications

This legal challenge by the Massachusetts Attorney General carries significant implications for the broader prediction market sector in the United States. The outcome could establish a precedent for the regulatory classification of prediction markets, potentially mandating that platforms obtain gambling licenses, which would increase compliance costs and possibly stifle innovation. The case also heightens scrutiny on crypto-native decentralized prediction markets, including Polymarket, which raised $200 million in early 2025, reaching a $2 billion valuation. Other platforms, such as Crypto.com, are leveraging Kalshi's argument for CFTC jurisdiction in their own legal defenses against state regulators. Kalshi has adopted an aggressive legal strategy, filing lawsuits against state regulators in Nevada, Maryland, and New Jersey, among at least seven states that have issued cease-and-desist orders. The ongoing litigation highlights the tension between state-level gambling laws and federal commodity regulations, impacting how digital asset futures products might be regulated.

Broader Context

The legal landscape for digital assets is at a critical juncture, with several landmark cases poised to redefine regulatory frameworks. The central argument for Kalshi and similar platforms like Crypto.com is that the Commodity Exchange Act (CEA) grants exclusive jurisdiction to the CFTC over their event contracts. This contrasts with state regulators who view these offerings as sports betting. The industry has seen substantial institutional investment, reaching $370 million, underscoring the growing financial interest in prediction markets. The evolving regulatory environment, potentially influenced by shifting political administrations, indicates a period of sustained legal battles as companies seek to clarify the jurisdictional boundaries and ensure operational compliance within the United States. Regulators may increase focus on consumer protections or apply gambling-style regulations to these markets due to their perceived similarities to traditional sports betting.