Prediction market giant Kalshi filed a federal lawsuit Wednesday in the Southern District of Iowa, seeking to bar Iowa Attorney General Brenna Bird and the state’s gaming regulators from enforcing Iowa gambling laws against the company’s federally regulated exchange.
The suit names Bird, the Iowa Racing & Gaming Commission, and several commission members as defendants.
According to the complaint, things came to a head March 4, when Kalshi’s director of state relations met with Bird for what was thought to be a friendly introductory meeting about prediction markets and a pending state tax bill. Instead, the suit alleges the Kalshi rep walked into a room full of attorneys, including Iowa’s solicitor general, who peppered him with questions about whether the company’s offerings violated state law.
Bird, according to the lawsuit, characterized the meeting as “like a deposition” and told the representative her office had been “looking at” Kalshi “for a long time.”
Six days later, Kalshi reached out seeking assurance no enforcement action was coming. The response, in writing, read in part that the state “will not give any assurances about potential future enforcement.”
State vs. feds
Kalshi made the same argument it has made in myriad other cases against states: federal preemption. The federal Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction, and Iowa can’t layer its gambling laws on top of that.
In the suit, the company points to recent wins in both Tennessee and New Jersey, where federal courts granted Kalshi preliminary injunctions barring state officials from moving against the exchange. In Tennessee, the court found Kalshi was “likely to succeed on the merits” on preemption grounds. In New Jersey, the court said it was “persuaded Kalshi’s sports-related event contracts fall within the CFTC’s exclusive jurisdiction.”
Iowa’s position isn’t new. Bird is among the AGs that have signed amicus briefs in Kalshi cases across the country arguing that states, not the CFTC, have the sole power to regulate Kalshi’s sports event contracts. Iowa’s gambling statutes subject unlawful gaming to both civil and criminal penalties, including up to 10 years imprisonment.
This lawsuit comes on the heels of yet another busy week for the courts and prediction markets, as a federal judge in Ohio on Monday shot down Kalshi’s bid to block the Ohio Casino Control Commission from going after it for offering sports event contracts.
Judge Sarah Morrison wasn’t buying Kalshi’s argument there that these contracts are swaps regulated by the feds. Sports scores, she said, aren’t the same as currency rates or energy costs. She called the idea of classifying sports event contracts as swaps “absurd.”
Meanwhile, in Michigan on Tuesday, a federal judge denied Polymarket’s request for a temporary restraining order that would have let it keep offering sports event contracts while fighting the state’s claim that it’s running unlicensed gambling.
Judge Paul Maloney wasn’t convinced Polymarket would suffer “immediate and irreparable injury” from enforcement.
