Kalshi vs. the States: When Jurisdiction Becomes a Battleground
Why Kalshi’s ‘Nobody Pulled Me Over’ Argument Risks Rewriting the Rules of Sports Gambling
Federal vs. State: The Battle Over Sports Event Contracts. The supplemental briefing in Maryland is now complete.
To recap: Maryland is one of seven states that issued Kalshi a cease and desist letter. Kalshi has already secured wins in Nevada and New Jersey–though New Jersey appealed, and that appeal was expedited with some briefs now filed. NFI submitted its amicus brief in the case.
Maryland is the third active jurisdiction where litigation is unfolding. The judge expressed skepticism toward some of Kalshi’s arguments leading to supplemental briefing. The briefs are in and here we are.
Today, we offer commentary on Kalshi’s supplemental brief.
Let’s Set Some Boundaries, Shall We? Kalshi is generally correct on federal preemption; the CFTC has jurisdiction over sports event contracts. This sentence from their brief is particularly critical:
If Defendants were correct, there would be no logical endpoint to states’ authority to regulate trading on federal exchanges.
Indeed. If states can claim authority over sports event contracts, then why not election contracts or weather contracts? There is no logical dividing line.
That’s precisely why Congress granted exclusive jurisdiction to the CFTC in the first place.
Back to the Future. We’ve seen this argument before–Eight years ago, in fact. Writing for NSEI, we said:
Petitioners ask the Court to declare PASPA, the biggest obstacle to legalized, nationwide sports gambling, unconstitutional. A world without PASPA would be an uneven one: people would be able to speculate on the outcome of a sports game as they wish, but not on the outcome of an election. In early 2016, if one wanted to speculate that Donald Trump would win the presidential elections and risk $10,000, he could not do it, at least not legally. (emphasis added)
And:
Without a doubt, the CFTC has jurisdiction over political and box office contracts. Why should sports gambling be any different? (emphasis added)
We were early. Our petition to the Supreme Court was in 2013 and we tried again in 2017 when we filed an amicus brief. Nothing happened– but not because we were wrong, we were just ahead of our time.
Same Argument, Different Motivation. Our position has always been rooted in enforcing the law as written. Sports gambling is unlawful. Whether people think it should be is beside the point–Congress has spoken, and the law should be respected.
Kalshi makes similar arguments about federal jurisdiction. They are correct on CFTC inaction. But their motivation is different. Kalshi argues that because the CFTC isn’t acting, their products must be legal.
That’s the problematic leap.
Legality vs. Non-Enforcement, and a Disturbing Hypothetical:
If I drive 120 miles per hour and the cops don't pull me over, is it illegal?
Google’s Gemini AI seems to think so:
Driving at 120 mph is a dangerous and illegal act, even if you don't immediately get caught. The fact that an officer didn't pull you over does not make the act legal.
Most people wouldn’t argue with that. That said, let’s test it via a hypothetical:
Your 16-year old just got their driver’s license. One morning, you take the same freeway they do and see a car going 120 mph. No police in sight. Would you think:
“Kudos to that driver. No cops in sight, so it’s fine,” or;
“Where are the police? This is clearly illegal and unsafe. Someone needs to stop this maniac.”
Now, take it a step further. Imagine that reckless driver hits and kills your 16-year old. In court, the driver says, “It wasn’t illegal. Nobody stopped me.”
Disturbing? Yes. But useful. Because legality and non-enforcement are not the same, and the hypothetical we presented above tests how far one is really willing to go to bat for that equivalence.
Lawfulness is determined by statute. Enforcement is discretionary. Non-enforcement does not retroactively legalize an act.
Kalshi’s brief, however, seems to depart from that view:
Kalshi has always accepted the CFTC’s authority to initiate review. But the CFTC has not done so, which means the contracts are permitted under federal law.
We disagree. The CFTC’s inaction does not imply permission. It’s simply… non-enforcement.
Where Do We Go From Here? Wait.. does this mean states have unlawfully facilitated sports gambling for years?
Yes. That’s exactly what we are saying. Again, if the laws are outdated or unpopular, the solution must be democratic: Congress can change them.
But until then, here’s where we land:
Our Case Summary.
The CFTC’s failure to act opened the door for states to host an unlawful sports gambling bonanza. Now that Kalshi wants in, the states are trying to slam that door shut. But the right response isn’t just to exclude Kalshi—it’s to end the party altogether.
Will sports gambling be gone for good? Time will tell. What’s clear is that Kalshi’s ambitions could destabilize the entire industry.
And as a wise man once said: Greed always overplays its hand.
