Massachusetts court upholds state ban on prediction markets
A Massachusetts Superior Court judge has allowed the state to move forward with a preliminary injunction against Kalshi, clearing the way for restrictions on the company’s sports-related event contracts.
The ruling, issued 20 January, addresses whether Kalshi’s prediction markets fall under state sports wagering law or are exclusively regulated at the federal level. Kalshi has repeatedly argued that it only needs federal authorisation, which it has, to operate.
While Kalshi initially focused on macroeconomic and political indicators, it later expanded into sports-related contracts covering game results, point spreads, total scores, and individual player outcomes.
Massachusetts regulators argued that these offerings functionally resemble sports betting and, therefore, require licensure under state law.
The court agreed that the Commonwealth demonstrated a likelihood of success on the merits of its claim that Kalshi is operating in violation of the Massachusetts Sports Wagering Law by offering sports-related contracts without a licence.
Massachusetts Attorney General Andrea Campbell said in a statement: “The Court has made clear that any company that wants to be in the sports gaming business in Massachusetts must play by our rules – no exceptions.”
The judge found that, despite Kalshi’s registration with the Commodity Futures Trading Commission (CFTC) as a designated contract market, federal law does not preempt state authority over sports wagering.
The decision, which could also impact Robinhood and others, emphasised that Congress has historically left gambling regulation to the states and did not clearly intend to displace that authority through the Commodity Exchange Act.
State rejects federally-regulated argument
Kalshi had contended that requiring a state sports betting licence would undermine the CFTC’s exclusive jurisdiction over derivatives markets and create regulatory conflict.
The court rejected that argument, concluding that Massachusetts’ licensing regime does not frustrate federal objectives and instead operates alongside them.
Should the ban be sought, it would make Massachusetts the first state to successfully block sports-related prediction markets.
The ruling noted that the CFTC’s special rule explicitly preserves state laws that address gaming or wagering, reinforcing the view that federal oversight of derivatives was not meant to legalise sports betting activity by default.
In assessing the public interest, the court highlighted the state’s responsibility to enforce consumer protections, responsible gambling measures, and tax collection requirements that apply to licensed operators.
Licensed sportsbooks in Massachusetts are subject to strict obligations related to identity verification, betting limits, reporting, and oversight by the Massachusetts Gaming Commission.
Allowing unlicensed sports-related contracts to continue would, in the court’s view, undermine that regulatory framework.
While the injunction was allowed, the judge acknowledged unresolved practical questions about how to halt new contracts without disrupting existing positions.
To address that conundrum, the court ordered a further briefing schedule requiring the Commonwealth to propose specific injunction terms and Kalshi to respond before a subsequent hearing.
Until that process concludes, Kalshi is not immediately barred from operating, but the onus is now on the company to demonstrate how compliance could be achieved without violating state law.
Decision could influence action in other states
The impact of the decision could be far-reaching. Gaming analyst and lawyer Daniel Wallach participated in an interview with Prediction News political trading analyst Chris Gerlacher, discussing what could come next.
Wallach said Massachusetts prevailed by suing first in state court, which shifted the dispute toward state law questions where the Commonwealth held a clear advantage.
He explained that once the case was remanded from federal court, Kalshi faced a much higher burden because its strategy relied almost entirely on federal preemption rather than defending against state sports wagering law itself.
He described the ruling as effectively inevitable once the judge focused on congressional intent at the time the Dodd-Frank Act was enacted in 2010, rather than later developments such as the widespread legalisation of sports betting.
Wallach noted that gambling has traditionally been regulated by states and that courts apply a strong presumption against federal preemption in that area, a presumption Kalshi failed to overcome.
He said the court found no evidence that Congress intended derivatives regulation to open the door to nationwide sports betting under CFTC oversight.
Federal statutes like PASPA and the Wire Act reflected congressional hostility toward sports betting at the time.
He also emphasised that the ruling allows a preliminary injunction but does not yet spell out how existing sports contracts in Massachusetts will be handled.
Wallach added: “Kalshi may be able to forestall any requirement that it exit the Commonwealth of Massachusetts, but I think it faces an uphill battle based on the legal standard for granting a stay of an injunction pending appeal.”
According to Wallach, the likely result is that Kalshi will be required to halt sports event contracts in Massachusetts, unwind existing positions involving state residents and possibly return users’ deposited funds, at least while appeals proceed.
https://next.io/news/regulation/massachusetts-court-upholds-state-ban-on-prediction-markets/