Kalshi CEO Tarek Mansour says that it would be “illegal” for a regulated prediction market to offer contracts on war. But the company’s official position is that contracts on war “would not by themselves be illegal.”
There’s no reason to believe that Kalshi’s stance that war contracts are not automatically illegal means it plans on listing contracts on acts of war. Rather, Mansour’s statements appear to undermine arguments Kalshi has made in court about the legality of sports event contracts. Contracts involving gaming — the exact definition of which has been disputed — are listed alongside war contracts in the laws and CFTC rules that Mansour appears to refer to.
If Kalshi believed war contracts were in themselves illegal as Mansour said, the business would be in a weaker position in arguing for the legality of its core product: sports event contracts.
Two-part test or ban?
There are two rules that govern event contracts involving gaming and war. At no point in statute or regulation is there a clause that applies to gaming but not war, or vice versa.
The first is the “Special Rule” within the Commodity Exchange Act, written by Congress as part of the Dodd-Frank reforms in 2010:
(C)Special rule for review and approval of event contracts and swaps contracts
(i)Event contracts
In connection with the listing of agreements, contracts, transactions, or swaps in excluded commodities that are based upon the occurrence, extent of an occurrence, or contingency (other than a change in the price, rate, value, or levels of a commodity described in section 1a(2)(i) [2] of this title), by a designated contract market or swap execution facility, the Commission may determine that such agreements, contracts, or transactions are contrary to the public interest if the agreements, contracts, or transactions involve—
(I)activity that is unlawful under any Federal or State law;
(II)terrorism;
(III)assassination;
(IV)war;
(V)gaming; or
(VI)other similar activity determined by the Commission, by rule or regulation, to be contrary to the public interest.
The Special Rule says that the CFTC “may” ban contracts related to terrorism, gaming, assassination, war, or illegal activities, if they are against the “public interest.”
The second is rule 40.11 of the CFTC’s own regulations, which refers to a “prohibition” and says an exchange “shall not list for trading” contracts on terrorism, gaming, assassination, war, or illegal activities, sometimes referred to as the “enumerated categories.”
Rule 40.11 then goes on to explain a review process for contracts involving those categories:
§ 40.11 Review of event contracts based upon certain excluded commodities.
(a) Prohibition. A registered entity shall not list for trading or accept for clearing on or through the registered entity any of the following:
(1) An agreement, contract, transaction, or swap based upon an excluded commodity, as defined in Section 1a(19)(iv) of the Act, that involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law; or
(2) An agreement, contract, transaction, or swap based upon an excluded commodity, as defined in Section 1a(19)(iv) of the Act, which involves, relates to, or references an activity that is similar to an activity enumerated in § 40.11(a)(1) of this part, and that the Commission determines, by rule or regulation, to be contrary to the public interest.
(b) [Reserved]
(c) 90-day review and approval of certain event contracts. The Commission may determine, based upon a review of the terms or conditions of a submission under § 40.2 or § 40.3, that an agreement, contract, transaction, or swap based on an excluded commodity, as defined in Section 1a(19)(iv) of the Act, which may involve, relate to, or reference an activity enumerated in § 40.11(a)(1) or § 40.11(a)(2), be subject to a 90-day review. The 90-day review shall commence from the date the Commission notifies the registered entity of a potential violation of § 40.11(a).
(1) The Commission shall request that a registered entity suspend the listing or trading of any agreement, contract, transaction, or swap based on an excluded commodity, as defined in Section 1a(19)(iv) of the Act, which may involve, relate to, or reference an activity enumerated in § 40.11(a)(1) or § 40.11(a)(2), during the Commission's 90-day review period. The Commission shall post on the Web site a notification of the intent to carry out a 90-day review.
(2) Final determination. The Commission shall issue an order approving or disapproving an agreement, contract, transaction, or swap that is subject to a 90-day review under § 40.11(c) not later than 90 days subsequent to the date that the Commission commences review, or if applicable, at the conclusion of such extended period agreed to or requested by the registered entity.
Some, such as Sen. Tina Smith in her questioning of CFTC Chair Michael Selig during his nomination process, have interpreted this as a ban on contracts within the enumerated categories.
Kalshi argues that the description of the review process means that the CFTC continues to give itself the power to ban any contracts on these categories, but only if it chooses to do so. It often refers to this as a “two-part test.”
In a legal brief submitted to the U.S. District Court for the District of Maryland in April of last year, Kalshi outlined this position.
“While Section 40.11(a) generally prohibits contracts involving gaming, Section 40.11(c) gives the CFTC discretion to approve such contracts on a case-by-case basis,” it said.
In a 2021 dissent against the CFTC’s decision to ban ErisX’s plan to offer sports event contracts, then-CFTC Commissioner Brian Quintenz (who would later become a Kalshi board member and get nominated, but not confirmed, as CFTC chair), argued that the wording of 40.11 suggesting a prohibition was illegal because it contradicted the special rule.
“The [CEA’s] meaning is plain and obvious; event contracts, even those that are enumerated in the statute, are allowed unless the Commission makes a determination that the contract is contrary to the public interest,” Quintenz wrote. “Regulation 40.11 somehow missed this, and violates the APA both for being contrary to the statute and for fumbling the ‘reasoned decision making’ test.”
Regardless of how the two are interpreted, it doesn’t appear that there is any way that gaming and war would be treated differently under the special rule and 40.11: Either both are banned or both are subject to a two-part test.
“There is no real textual difference between the enumerated categories,” an expert in commodity futures law told InGame.
Mansour seems to undermine two-part test
Yet Mansour has repeatedly undermined the “two-part test” argument by claiming that the test does not apply for war.
He argued that contracts on war are illegal in explaining the company’s decisions in settling a market titled “Ali Khamenei out as Supreme Leader?” Despite the name, the contracts rules said that if Khamenei died, the contract would be settled at the last traded price prior to his death. On Feb. 28, Mansour wrote that death-based contracts are “not allowed for U.S. regulated entities.”
In a post on March 1, Mansour said regulated prediction markets are “required” to avoid contracts on war, assassination, or terrorism.
Even before the current Iran War began, Mansour had called war contracts “illegal.”
On Feb. 18, in response to a post from a journalist, Mansour wrote: “We don’t list markets on whether Israel will strike Gaza, or markets on war or violence (it’s illegal to do so).”
In the following weeks, Mansour repeated this message. Quoting a post from Sen. Chris Murphy, the Kalshi co-founder said war markets are “not allowed.”
In both of those cases, Mansour’s posts were in response to statements that did appear to mix up Kalshi and Polymarket. Both statements were in reply to posts referencing prediction market contracts on whether Israel will strike Gaza, which Kalshi has never offered. But while there is a difference between what contracts Kalshi and Polymarket offer in practice, Mansour’s comments argue a position inconsistent with how Kalshi argues the same statute works for gaming.
But in his September appearance on Bloomberg‘s Odd Lots podcast, Mansour instead laid out the two-part test argument. He explicitly noted that this would apply to war, not just gaming.
“If you read the Commodities Exchange Act, it’s a two-prong test,” he said. “It’s ‘Is an event related to war, terrism, assassination, violence, or gaming, or stuff that’s illegal under state or federal law?’ We could debate whether this falls under gaming or not. And there’s actually quite a bit of a debate there.
“And then the second test, which is like, if it does fall under this category, the CFTC can make an explicit determination that is contrary to public interest. So there is that sort of second standard.”
Kalshi spokesperson: War contracts ‘not by themselves illegal’
A Kalshi spokesperson defined the legal status of war contracts differently from Mansour’s social media posts.
They suggested that the claim that contracts on war were illegal was based on “inference” about what the CFTC would do, rather than a statement about the law as it is written.
“It is correct that there is a two-part test. So such contracts would not by themselves be illegal if listed on a DCM,” the spokesperson said.
“However, it does not take much to draw an inference that if such a contract were offered it would raise serious questions and trigger such a CFTC review for whether they are against the public interest.”
The spokesperson also noted that regardless of potential future contracts, any actually existing contracts on acts of war only exist on offshore platforms such as Polymarket’s non-U.S. site and are therefore illegal to trade in the U.S.
It is possible that the CFTC would indeed ban all event contracts on war for being against the public interest. However the regulator has been very sparing in launching public interest reviews into event contracts in practice.
After Kalshi sued the CFTC over its attempt to block its election contracts, the CFTC has not launched any public interest reviews, despite thousands of new self-certifications.
Two-part test major part of Kalshi arguments
The argument that there is a two-part test for gaming or war contracts is a key cornerstone to Kalshi’s argument that sports contracts are legal. Kalshi goes beyond arguing that the special rule permits event contracts on sports; it argues that the rule proves that the CFTC has “exclusive jurisdiction” over banning gambling-related event contracts, and that therefore states cannot ban them.
In a hearing before the Superior Court for Suffolk County in Massachusetts last December, Kalshi lawyer Grant Mainland made that argument.
“What congress did not do is say, ‘To the extent that it fits into one of the enumerated categories, the preemption doesn’t go that far,’” he said. “What Congress did instead was allow the CFTC to express its authority.”
Similar arguments have been made in federal courts around the country. In the U.S. Court of Appeals for the Fourth Circuit, Kalshi argued the special rule “supports” its argument that the contracts are legal by putting the decision to ban gaming contracts in the hands of the CFTC, and therefore that Congress intended for the CEA to preempt state gambling laws. In the Third Circuit, Blanche Lincoln — the former U.S. senator generally credited with writing the special rule, who is now a lobbyist representing Kalshi — led a group of former legislators in writing an amicus brief in Kalshi’s favor, making a similar point.
If Mansour believed that war contracts are automatically illegal, it would appear to weaken the argument that the CFTC’s exclusive jurisdiction extends into areas traditionally covered by state gambling regulators.
CFTC appears to treat it as two-part test
When the CFTC has addressed contracts that concern the enumerated categories in the past, it seems to have treated the rule in question more like a two-part test than a blanket prohibition.
For example, in the now-withdrawn 2024 order banning event contracts on sports and elections, the CFTC said that these contracts were not only a form of gaming, but were also against the public interest. When Nadex attempted to offer political event contracts in 2012, and when Kalshi did so in 2023, the CFTC attempted to ban those contracts by arguing that they were both gaming and against the public interest.
“In both cases, whether or not the regulation suggests a prohibition, the CFTC did treat it more like a two-part test,” the legal expert said.
It first ruled that they were gaming and then determined that they were against the public interest. In both cases, the regulator cited public interest risks such as the fact that political contracts “can potentially be used in ways that would have an adverse effect on the integrity of elections,” and weighed them against the potential economic purposes of the contracts, a move that would have been unnecessary if there was a blanket ban.
The CFTC has never issued a similar order banning contracts involving war, terrorism, or assassination.
Gaming definition has been debated
While Kalshi argues for a two-part test, and that its sports contracts are in the public interest, it does not concede that these contracts involve gaming. In the Massachusetts hearing, Mainland made clear that while Kalshi argued that there was a two-part test, the business would not define its sports contracts as involving gaming.
What it means for a contract to involve gaming has been debated. Because it is not central to Kalshi’s lawsuits against states, courts have not settled on a definition.
In January 2025, while arguing about the legality of its election contracts, and just before it started offering trades on sports, Kalshi’s lawyers argued that a contract involving gaming was one where the underlying event was a game, but said that this could include a contract on sports outcomes.
Since it started offering sports contracts on Jan. 24, 2025, Kalshi has not spent much time laying out how it defines a contract involving gaming.
Kalshi does not appear to hold the position today that its sports contracts today involve gaming, though it would not necessarily be ruinous to its argument that they are legal.
One proposed definition that would exclude sports contracts came up in a letter that current CFTC Chair Michael Selig worked on. The interpretation hinges in part on the word “involving,” arguing that this means that a contract can only involve gaming if the underlying event that is being bet on is itself a casino-like game played for stakes. Under this definition, a contract on the winner of an NBA game would not involve gaming, but a contract on the winner of a poker tournament would.
Kalshi does not offer direct war contracts, but …
Regardless of its stance on their legality, Kalshi has stayed away from contracts that would allow users to trade directly on acts of war.
“Kalshi stands behind its arguments in court,” the spokesperson said. “But since we don’t offer death contracts, we’re not going to be put in a spot to defend them anywhere.”
Users of Polymarket’s global site — which does not allow users with U.S. IP addresses to trade — can bet on which days that the U.S. will strike Iran, which countries Iran will strike, whether U.S. troops will enter Iran, and the length of the war, among other war-related contracts. In other conflicts, Polymarket takes bets on whether Ukrainian cities will be captured by the Russian army, whether Israel will annex Gaza, and hypothetical conflicts such as the prospect of a new U.S. Civil War.
Kalshi does not offer any of those markets, or anything similarly directly related to military actions, but it does offer some contracts on events that are likely to be influenced in a significant way by war. For example, it offers a contract on whether Iran will be a democracy this year.
Last year, Kalshi offered a contract on whether the Integrated Food Security Phase Classification would classify the food security situation in Gaza as a famine.
Neither of those contracts appear to have been challenged by the CFTC.
