Judge Dissolves Kalshi Nevada Injunction, Putting Status Of Sports Contracts In Doubt

A federal judge has dissolved an injunction that had allowed Kalshi to keep offering its sports event contracts in Nevada since April, putting the status of its offerings in the state at risk.

Kalshi is “anticipating” an appeal, though a decision has not been made yet, and the judge hinted that he may still allow Kalshi’s contracts to remain available while an appeal is being considered.

Judge Andrew Gordon had issued Kalshi an injunction in April, allowing the prediction market to keep offering sports event contracts in Nevada. The injunction prevented Nevada from enforcing a cease-and-desist order against Kalshi, for offering sports contracts — which the state argues are a form of illegal gambling — in Nevada.

However, the status of that injunction came under question when Gordon denied a similar injunction to rival prediction market platform Crypto.com, without explaining any differences of note between the two cases. In the Crypto.com decision, Gordon said that he did not believe contracts on the outcome of a sporting event could be considered “swaps” — a type of financial instrument generally used for hedging — and therefore the Commodity Futures Trading Commission (CFTC) would not have “exclusive jurisdiction” over them.

That prompted Nevada to call for a hearing on dissolving the original injunction, held earlier this month, in which Gordon said he was “leaning towards” doing so.

Judge dissolves Kalshi injunction

On Monday, Gordon granted the motion to dissolve the injunction. The decision was entered into the record Tuesday.

In his opinion explaining the decision, Gordon points out that there must be a “significant change” in either the facts of a case or the law in order to justify dissolving an injunction. He said that the Crypto.com decision counted as new law, while Kalshi’s continued self-certification of more markets — it has added prop bets and parlays, among other types of bets, since the April injunction decision — could be considered new facts.

Gordon went on to note that the facts may continue to change as other Kalshi lawsuits take place — in states such as Maryland and New Jersey — and as the case makes its way through appeals. 

“My preliminary injunction order was issued very early in this litigation on an accelerated schedule,” he wrote. “The law and facts have evolved in this court and others. The circumstances may change yet again when the Third and Fourth Circuits rule on the appeals pending in those courts, or when the Ninth Circuit rules on the inevitable appeal of my rulings in Crypto, this case, and Robinhood.” 

Gordon also pointed out that — having blocked one of Kalshi’s main competitors in Crypto.com from Nevada — it would be unfair to allow Kalshi to keep operating.

“Additionally, it would be unfair for me to not consider dissolving the injunction given that I denied an injunction under similar circumstances for one of Kalshi’s competitors in Crypto,” he said. “So, I reject Kalshi’s procedural arguments, and I will consider the motion to dissolve the preliminary injunction on the merits.”

Definition of ‘swap’ is key

Gordon added that the facts suggest that Kalshi is “not likely to succeed” in winning its lawsuit with Nevada on the merits, though there are “serious questions” about this.

This, he said, was mostly due to his interpretation of a “swap” outlined in the Crypto.com case. 

According to the Commodity Exchange Act (CEA), a swap includes “any agreement, contract, or transaction … that is 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.”

Gordon had determined that the use of both the words “event” and “occurrence” suggested that the two were intended to convey different meanings, and so he came to the conclusion that the definition only included bets on whether an event such as a sports game happened, not details like who won.

Kalshi suggested that this debate over interpretation of a swap was one for the CFTC, and if Nevada believed the interpretation was wrong it should sue the CFTC under the Administrative Procedure Act instead of trying to enforce gambling laws against Kalshi.

Gordon said that, “Courts routinely evaluate statutory language to determine whether state law is preempted and the scope of any preemption.”

Do sports contracts have financial consequence?

Gordon’s interpretation of a swap in the Crypto.com case focused on the meaning of “occurrence” and “event,” rather than what it means to be “associated with a potential financial, economic, or commercial consequence,” which has been a key part of other lawsuits.

However, in his decision to dissolve Kalshi’s injunction, Gordon also questioned whether the prediction market’s sports contracts met this standard. 

During the hearing earlier this month on whether to dissolve the injunction, Kalshi lawyer William Havemann said that this clause means “the event itself has to have potential financial, commercial, or economic consequence. It can’t be an event that makes another financially consequential event more or less likely to occur.” 

That, Gordon said, would rule out knock-on financial effects from sporting outcomes, such as the economic impact of a championship parade, despite these effects often being cited by Kalshi as examples of economic or financial impacts from sporting outcomes.

Like with “swap,” Gordon attempted to come up with his own definition of financial or economic consequences that would not be so broad as to include almost all events.

“Like the words ‘event’ and ‘contingency,’ I must give these words a reasonable and coherent meaning within the statutory context that does not lead to absurdities,” Gordon wrote. “I conclude that the phrase ‘associated with a potential financial, economic, or commercial consequence’ means that the event or contingency is itself inherently joined or connected with a potential financial, economic, or commercial consequence. 

“This means that the event or contingency itself has some potential financial, economic, or commercial consequence without looking at externalities like potential downstream financial consequences such as parties extrinsic to the event betting on it. And it does not include consumer transactions that have not historically been known to be swaps, such as sports wagers.”

The judge argued that “legislative context” and the CFTC’s guidance on swaps support this definition.

Andrew Kim, a partner at Goodwin Law, told InGame that the nature of the case meant that judges are naturally going to have to explain their own interpretations of the law.

“This is typically what we see in complex statutory interpretation cases,” he said. “In fact, I expected to see more — things like the plain meaning of ‘associated with’ or ‘potential.’ There isn’t a ton of analysis of the text of the relevant definition of ‘swap.’”

Gordon’s interpretation appears to conflict with the views of at least one Third Circuit judge. When considering an appeal in the lawsuit between Kalshi and New Jersey, Justice David J. Porter argued that the law itself appeared to be written broadly, and if it needed to be changed then that would be the responsibility of Congress.

This kind of disagreement between federal judges may be a sign that the case will ultimately need to be settled by the Supreme Court. Typically the Supreme Court considers cases where two or more Circuit Courts disagree.

Judge may stay enforcement pending appeal

However, while he believed that Kalshi was not likely to succeed on the merits, Gordon acknowledged that the prediction market has at least “raised serious questions.”

“Although I conclude Kalshi has not shown a likelihood of success, it has raised serious questions on the merits,” he said. “The issues in this and similar cases are complex, novel, and evolving. Kalshi has raised serious questions about how to properly interpret the statutory language, to divine congressional intent, and to resolve the tension between what constitutes state-regulated gambling versus federally regulated derivatives.”

This wording may suggest a willingness to allow Kalshi’s contracts to remain available by staying enforcement of Nevada’s cease-and-desist while Kalshi appeals the decision. Kalshi would be able to appeal the decision to the Ninth Circuit.

On Monday, before the dissolution decision was handed down, Kalshi filed a motion to stay in order to try to prevent Nevada from immediately enforcing its cease-and-desist upon dissolution. 

A Kalshi spokesperson told InGame that the prediction market expects to appeal the decision, though they said the company was still evaluating that decision.

“We respectfully disagree with this decision,” the spokesperson said. “As other courts have recognized, Kalshi is a regulated, nationwide exchange for real-world events, and it is subject to exclusive federal jurisdiction. It’s very different from what state-regulated sportsbooks and casinos offer their customers. 

“We are evaluating the decision and anticipate making an appeal to the Ninth Circuit.”

Kim told InGame he would expect the judge to grant a stay to keep Kalshi’s sports contracts available in Nevada.

“I think the Ninth Circuit will give any request for a stay pending appeal serious consideration, especially as Judge Gordon recognized there are serious questions presented by his decision (which is part of the legal standard for getting a stay),” he said. “It’s hard to speculate on how all of this will shake out, given the difficulty of the legal questions and the speed with which we’re moving. 

“But we should have some more clarity on Nevada in the next few weeks.”

Crypto.com took down its sports contracts in Nevada earlier this month, after Gordon’s ruling against the business. At the time of the ruling, the exchange said it would appeal to the Ninth Circuit, but no appeal has been filed yet.