US Legal Battle: Kalshi and Crypto.com Challenge State Gambling Regulations

The landscape of prediction markets in the United States is currently facing significant legal turmoil as operators like Kalshi and state regulators clash over jurisdiction. At the heart of the matter is whether bets on real-world events, such as sports or political outcomes, should be classified as financial derivatives or traditional gambling. Kalshi has filed a lawsuit against Missouri Attorney General Catherine Hanaway and the Missouri Gaming Commission. The goal is to prevent the state from enforcing its gambling laws against Kalshi’s sports-event contracts. This action follows a cease-and-desist letter from September 16, which accused the platform of operating an unlicensed sports wagering site.

Kalshi argues that Missouri’s licensing requirements are impossible to meet for an exchange. The state currently limits mobile sports betting licenses to a few operators like DraftKings and Circa Sports, or requires affiliations with land-based casinos and pro sports teams. Kalshi contends that under the Supremacy Clause of the U.S. Constitution, the Commodity Exchange Act (CEA) gives the CFTC exclusive authority over these federally regulated exchanges. Missouri extended a compliance deadline to October 30, but Kalshi is seeking a preliminary injunction to protect its operations and its Missouri-based users.

Numbers and facts

Market data released by Citizens on October 27 indicates a cooling trend in the broader U.S. iGaming sector. Revenue growth slowed to 12% year-over-year in the third quarter, down from nearly 20% earlier in the year. FanDuel continues to lead with a 25.1% market share, while DraftKings holds 22.2%. In stark contrast, Robinhood’s financial performance highlights the booming interest in prediction markets. The company reported $173 million in revenue from event contracts for Q3, more than six times the previous year’s figure. This marked the second consecutive quarter where prediction markets generated more revenue for Robinhood than cryptocurrency trading, which fell to $120 million. Meanwhile, Caesars Entertainment saw its net loss widen to $123 million despite overall revenue growth.

Background

A parallel legal fight is unfolding in Utah. North American Derivatives Exchange (Nadex), operating the OG.com platform backed by Crypto.com, sued the state on the same day the CFTC filed its own federal complaint. Utah had previously sued Kalshi in state court to recover alleged gambling losses for residents. Nadex argues that state officials’ public comments create an imminent threat to its platform. Beyond the boardrooms, the industry is also grappling with integrity issues. Former NBA player Malik Beasley has agreed to plead guilty to federal charges related to a betting scheme during the 2023-24 season. He is accused of manipulating his statistical performance in four games to aid associates in winning player proposition bets.

„Missouri demanded that Kalshi either stop offering sports contracts or obtain a sports betting license, but Missouri’s licensing requirements offer no realistic path to compliance.“ - Kalshi Legal Filing, Federal Court of Missouri

In response to heightened scrutiny, Kalshi is ramping up its responsible trading tools. The platform introduced a $2,500 monthly deposit limit for users aged 18 to 20. Additionally, new alerts will now notify traders if they risk more than 25% of their total balance on a single contract. These measures aim to demonstrate that the industry can self-regulate effectively while maintaining its stance that it operates within the federal financial regulatory framework rather than state gambling law.

Why it matters for German players

For players in Germany, the U.S. legal conflict serves as a reminder of the benefits of a clear regulatory framework. In Germany, the 2021 Interstate Treaty on Gambling (GlüStV 2021) provides a strict but stable environment for online gaming. Unlike the U.S. prediction markets, all forms of online betting in Germany must be licensed by the GGL. German players are protected by mandatory deposit limits of 1,000 Euro per month across all providers, monitored via the LUGAS system. Furthermore, the 1 Euro stake limit for virtual slots ensures a level of player protection not found in the largely unregulated U.S. prediction sector. German residents should stick to the official GGL whitelist to avoid the legal uncertainties currently plaguing U.S. users.

What it means for GGL-licensed casinos

For GGL-licensed operators, the slowing growth in the U.S. market is a signal to focus on sustainable player retention rather than aggressive expansion into gray areas. The legal disputes involving Kalshi and Crypto.com show that operating without crystal-clear jurisdiction is a massive financial risk. German casinos can leverage their status as safe, legal alternatives to offshore sites from MGA or Curacao jurisdictions. By strictly adhering to LUGAS and OASIS requirements, German operators maintain the highest standards of integrity, which is increasingly becoming a competitive advantage as global markets face regulatory pushback.