The latest volley in matter of the Kalshi versus state-level gaming regulators brings us to Maryland, where on Friday evening, attorneys for the Maryland Lottery and Gaming Control Commission (MLGCC) filed its opposition to Kalshi’s motion for a preliminary injunction.
Kalshi, a prediction market exchange operating as a Designated Contract Market (DCM) under the auspices of the federal Commodity Futures Trading Commission (CFTC), advanced very similar arguments in its April 21 motion as it did previously in federal courts in Nevada and New Jersey.
Namely, that Kalshi and its sports-related prediction markets are overseen by the CFTC, which maintains “exclusive jurisdiction” to regulate the kind of event contracts Kalshi allows its user base to trade. And further that the Maryland rules and regulations that govern state-licensed sportsbooks do not apply to Kalshi or its ilk, which Kalshi says answers only to the CFTC, an agency created under the Commodity Exchange Act (CEA). Kalshi lawyers argue that this statutory and legislative framework means that the federal law preempts the state-level laws around event contracts and sports gambling.
With the benefit and perhaps also the disadvantage of two prior rulings on similar issues to draw on — the Nevada ruling is referenced in Kalshi’s motion — Maryland’s attorney general’s office in its opposition attempts to draw distinctions to those cases and also illuminate why the court just plain got it wrong.
Drawing distinctions
Focusing on the “economic consequence” aspect of the case, that a “swap” (or a contract, or agreement) available for trading must be “dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence,” Maryland’s lawyers submit:
Kalshi’s gaming devices do not involve the sporting event itself, but rather the outcome of the event, i.e., which team will win the game. Kalshi and the District of New Jersey miss this important distinction; Kalshi argues and the District of New Jersey acknowledged that some sporting events have economic impact. See KalshiEX, LLC v. Flaherty, et al., No. 25–cv–02152– ESK–MJS, 2025 WL 1218313, at *6 (D. N. J. April 28, 2025). Being outcome-focused, however, Kalshi’s gaming devices are simply a speculative wager on who will win a particular sporting event. They are not dependent upon, or otherwise related to, any potential economic impact of the underlying sporting event taking place, let alone any legitimate hedging activity. The only people who benefit economically from the outcome of the sporting event are the participants themselves. As such, whether one competitor wins or loses does not change the economic, financial, or commercial outcome for anyone but the competitors themselves.
The Maryland defendants also dispute the notion that Kalshi’s sports-based “event contracts” are actually “swaps” at all, the kind that the CFTC would have exclusive jurisdiction over.
Kalshi self-defines its gaming devices as “event contracts,” but this term is not included in the statutory text of the CFTC’s “exclusive jurisdiction.” 5 7 U.S.C. § 2(a)(1)(A). Despite “event contracts” not being in the CFTC’s “exclusive jurisdiction,” Kalshi erroneously argues that anything traded or executed on a DCM is still subject to the exclusive jurisdiction of the CFTC. See ECF 2 at 6. Though the District of Nevada accepted this argument, it is incorrect. See KalshiEX, LLC v. Hendrick, No. 2:25-CV-00575-APG-BNW, 2025 WL 1073495, at *6 (D. Nev. Apr. 9, 2025). The act of offering a contract on a DCM does not bring necessarily that contract into the CFTC’s exclusive jurisdiction.
Maryland’s lawyers spend a good amount of space discussing the swaps issue and whether or not the event contracts here actually constitute “an event or contingency associated with a financial, commercial, or economic consequence.”
In this section, Maryland pushes back against the rationale in the Kalshi-New Jersey matter, specifically Judge Edward S. Kiel’s ruling in which he accepted Kalshi’s arguments around sports events and their connection to economic consequence:
Kalshi’s gaming devices do not involve the sporting event itself, but rather the outcome of the event, i.e., which team will win the game. Kalshi and the District of New Jersey miss this important distinction; Kalshi argues and the District of New Jersey acknowledged that some sporting events have economic impact. See KalshiEX, LLC v. Flaherty, et al., No. 25–cv–02152– ESK–MJS, 2025 WL 1218313, at *6 (D. N. J. April 28, 2025). Being outcome-focused, however, Kalshi’s gaming devices are simply a speculative wager on who will win a particular sporting event. They are not dependent upon, or otherwise related to, any potential economic impact of the underlying sporting event taking place, let alone any legitimate hedging activity. The only people who benefit economically from the outcome of the sporting event are the participants themselves. As such, whether one competitor wins or loses does not change the economic, financial, or commercial outcome for anyone but the competitors themselves.
Other aspects of the ranging Maryland brief involve the Wire Act, the Indian Gaming Regulatory Act (IGRA), various canons of statutory interpretation, as well as the CFTC’s Special Rule that prohibits a contract or swap that “involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law”; or one that is contrary to the public interest.
Maryland also dabbled in a bit of name calling, which may or may not be an effective advocacy strategy. “Kalshi now cries crocodile tears and exclaims that it is being forced into ‘a Hobson’s Choice’ by the Cease and Desist letter. ECF 2 at 17-19. However, it was Kalshi affirmative act of self-certifying gaming devices clearly prohibited by Regulation 40.11(a)(1) that created Kalshi’s current dilemma, and any harm resulting from that act lies squarely on Kalshi’s shoulders.”
At least one veteran appellate attorney who’s been following the cases closely weighed in on that:
Kalshi’s reply is due on May 19 and a hearing will follow between May 27-30 or on June 2. Kalshi will either go up 3-0 in preliminary injunction bids or Maryland will notch the first win for the states.
