Kalshi files lawsuit against Maryland as battle between regulators, prediction markets heats up

Prediction market operator Kalshi has filed a lawsuit against the Maryland Lottery and Gaming Control Commission (MLGCC), arguing that the regulator is “unconstitutionally threatening to prohibit trading of Kalshi sports-event contracts" in the state.

The motion, filed in the United States District Court for the District of Maryland Northern Division, follows similar lawsuits brought forward by the New York-based company in New Jersey and Nevada, as the battle between state gambling regulators and prediction market operators keeps heating up.

At the heart of the disputes is whether sports event contracts constitute state-regulated sports bets or fall under federally regulated futures contracts. The MLGCC sides with the former view, which led it to issue Kalshi a cease-and-desist order earlier in the month. The prediction market operator's lawsuit is in response to that order.

“Kalshi is operating in Maryland and is offering and conducting what is, in fact, wagering on sporting events," Maryland Lottery and Gaming Control agency director John Martin wrote in the cease-and-desist order. "However, Kalshi does not hold a sports wagering license issued by the Commission, its wagers have not been approved by the Commission, and it is not otherwise authorized under Maryland law.”

While similar orders were issued to three prediction market operators, Kalshi is the only one to respond. In its lawsuit, Kalshi argues that the MLGCC lacks the authority to prohibit trading of its sports-event contracts, since they are authorized by the Commodity Futures Trading Commission (CFTC) — "the federal agency that Congress endowed with ‘exclusive jurisdiction’ to regulate trading on federally designated exchanges like Kalshi."

Kalshi further argues that the regulator's actions could cause “irreparable harm” to its business and that, unless they are prevented, it could lead to a state-by-state patchwork of regulations that Congress wanted to avoid when it subjected CFTC-regulated exchanges to exclusive federal regulations.

However, Maryland isn't alone in its fight against Kalshi. At least six states have sent cease-and-desist orders to the operator, which has also countered with lawsuits in New Jersey and Nevada. Kalshi won the initial round in its Nevada suit, providing it with a temporary relief from the state’s order.  

Moreover, the Tennessee gambling regulator also recently wrote to the CFTC to strongly oppose sports event prediction markets within its jurisdiction. The state agency sent a letter to the Commission on April 14, asking it to respect state law and not permit the offering of sports-event contracts.