A Nevada federal court judge has told Kalshi that its time is up in the state for now. Judge Andrew Gordon dissolved the temporary injunction that he awarded the company against the Nevada Gaming Control Board (NGCB), writing in a Nov. 24 decision that everyone including Kalshi can see that their sports event contracts are clearly sports betting.
Gordon granted Kalshi a preliminary injunction and temporary restraining order (TRO) in April, allowing it to keep its sports contracts online in the state despite the NGCB’s cease-and-desist order while the lawsuit filed by the designated contract market (DCM) continued.
In a filing on Monday, Gordon reversed that order, granting the NGCB’s motion to lift the injunction.
Judge says Kalshi knows sports betting is sports betting
In its application for an injunction, Kalshi labeled its contracts on sporting events such as the Super Bowl and March Madness as swaps under the federal regulatory jurisdiction of the Commodity Futures Trading Commission (CFTC). However, Gordon wrote that Kalshi has established a market for sports betting and advertised itself as the first app to offer legal sports betting in all 50 states, despite not being licensed to conduct gaming in Nevada or any other state.
“These are sports wagers and everyone who sees them knows it. That includes Kalshi, who has advertised itself as the ‘first app for legal sports betting in all 50 states.'”
He stressed that Kalshi’s interpretation of the Commodity Exchange Act (CEA) would require all sports betting across the U.S. to fall under the jurisdiction of the CFTC rather than the states and Indian tribes.
“That interpretation upsets decades of federalism regarding gaming regulation, is contrary to Congress’ intent behind the CEA, and cannot be sustained,” decreed Gordon.
Scales have tipped, say Gordon
Since Gordon granted Kalshi the injunction in April, plenty has changed.
Over the summer, a Maryland judge denied Kalshi an injunction, ruling that state gaming authorities were not preempted from regulating sports-related event contracts. At the start of October, Gordon himself denied Crypto.com an injunction against the NGCB after determining that Crypto.com’s sports contracts do not qualify as swaps under the CEA. Crypto.com has since stopped offering sports contracts in Nevada.
Gordon referred to both rulings as “new law” that needs to be taken into account.
Meanwhile, Kalshi has greatly expanded its sports menu by offering contracts such as prop-style markets, which Gordon wrote are potentially contrary to what Kalshi previously told him should not count as swaps because they have no real-world economic consequence. While Gordon initially said that he believed Kalshi stood a good chance to succeed based on the merits of its case, he now finds that “new facts” show that Kalshi is going beyond what it was doing when it was awarded the injunction.
Judge rejects Kalshi’s argument of harm
Gordon also rejected Kalshi’s suggestion that the company could not geofence itself out of Nevada without suffering extreme economic burden, inconvenience or reputational damage. He pointed to the fact that Crypto.com has done so without suffering notable negative consequences, and argued that the burden of who would be most damaged has flipped. In other words, the harm the Nevada gaming industry would suffer from Kalshi continuing to offer sports contracts would be greater than Kalshi’s losses from temporarily stopping sports in Nevada
In a communication to DCMs issued on Oct. 1, the CFTC told financial exchange firms they should submit contingency plans for how they would handle being told to go offline by court orders in certain states.
“Kalshi could have proceeded cautiously until this and other lawsuits played out, but instead it greatly expanded its offerings, so it has to some extent created or amplified its own harm,” wrote Gordon.
“I therefore find that the balance of hardships does not tip sharply in Kalshi’s favor. Rather, the balance of hardships and the public interest weigh in favor of the defendants and of dissolving the preliminary injunction.”
Kalshi intends to appeal
On Nov. 25, Kalshi responded by filing an emergency motion for a stay pending an appeal, claiming that it “faces a threat of imminent criminal enforcement by Nevada authorities.” The company confirmed it will appeal.
Kalshi rejected Gordon’s opinion that the balance of harms does not tip toward Kalshi and stated that it would suffer “extensive and irreparable harm” if the NGCB commences a state-court prosecution against Kalshi even as an appeal proceeds.
