Kalshi Challenges Ohio’s Cease-and-Desist, Citing Federal Jurisdiction Over Prediction Markets

Kalshi has filed a lawsuit against the Ohio Casino Control Commission (OCCC) and the state’s Attorney General to prevent enforcement of a cease-and-desist order issued earlier this year. The action follows warnings from the OCCC to licensed gambling companies about participating in prediction markets. In the complaint, Kalshi asserts that the state’s actions “impair Kalshi’s existing contracts with consumers and business partners, subject Kalshi’s users to uncertainty and loss, undermine confidence in the integrity of Kalshi’s platform, threaten its prospective business relationships, and jeopardize Kalshi’s status as a CFTC-licensed exchange.”

The lawsuit reiterates arguments Kalshi has previously advanced in other court filings, claiming that the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction over its event contracts. As a federal regulator, the CFTC’s oversight, according to Kalshi, preempts state gambling laws.

Sports markets have dominated trading on the platform, which has not faced action from the CFTC regarding these products. Kalshi has self-certified a range of markets, including parlays, prop bets, totals, and point spreads, in addition to its original offerings of futures and moneylines. In the past two weeks alone, the platform has traded roughly $2 billion, with over 90% of volume concentrated in sports. It took Kalshi six months to reach $2 billion in sports trading volume after launching its first markets in January.

The NFL season has fueled rapid expansion in marketing and user reach across multiple markets. Kalshi’s advertisements emphasize that sports betting is legal in all 50 states, with particular focus on Texas and California. Investor concerns over prediction markets have contributed to declining stock prices among major sportsbooks, with DraftKings’ share price falling below $33 on Wednesday from over $48 at the end of August. Meanwhile, the New York Stock Exchange owner ICE has announced a $2 billion investment in Polymarket as it prepares to re-enter the U.S. market, which may face similar scrutiny from state regulators.

In Ohio, where sports betting is legal, regulators view the growth of prediction markets as a threat to state tax revenue. Even when Kalshi’s offerings were limited to futures and match-winner markets, Ohio officials opposed the platform. In a cease-and-desist letter issued in April, OCCC Executive Director Matthew Schuler wrote, “Plainly stated, Kalshi is operating online sports gaming.” Beyond the OCCC, the group Ohio Gambling Recovery filed a lawsuit against Kalshi in July, seeking compensation for residents who lost money on the platform and claiming Kalshi operates as an illegal betting service. Kalshi has requested that the case be moved to federal court, believing it offers a more favorable forum for arguing that federal law preempts state regulations.

Despite marketing sports betting, Kalshi maintains that its contracts are “economic instruments” rather than wagers. The lawsuit states, “Kalshi is not a sportsbook. It is a federally regulated designated contract market. Its contracts, while sometimes referencing athletic performance, are economic instruments, not wagers. The State’s attempt to recast them as gambling is preempted and unconstitutional.” Ohio was one of seven states that issued cease-and-desist letters to Kalshi in April, initially giving the platform until April 16 to halt sports market offerings in the state. Subsequent conversations between Kalshi and regulators failed to produce a resolution, prompting the company to take legal action similar to that pursued in Maryland, Nevada, and New Jersey.

Kalshi is seeking a temporary restraining order (TRO) and a preliminary injunction. Courts have granted such relief in Nevada and New Jersey but denied it in Maryland. Kalshi has appealed the Maryland ruling and is permitted to continue operations while the appeal is pending. In another setback for prediction markets, Crypto.com was denied a preliminary injunction after filing a lawsuit in Nevada, despite the same judge having granted Kalshi relief in April.

The Ohio case has been assigned to Chief Judge Sarah D. Morrison. Should she deny the request for an injunction, it may embolden additional states to target Kalshi and other prediction market operators. Other states that have issued cease-and-desist letters include Arizona, Illinois, and Montana. Like Ohio, Arizona also warned companies against creating their own prediction markets or doing business with such platforms. Michigan followed with a similar warning last week, signaling that further legal battles are likely in the near future.

By fLEXI tEAM