Suffolk County Superior Court this week became the setting for a closely watched dispute over how sports-linked prediction markets should be regulated. Massachusetts officials asked the court to stop Kalshi from offering sports event contracts to state residents, arguing that the company’s activity resembles unlicensed sports wagering rather than financial trading. Judge Christopher Barry-Smith questioned both sides at length as he considered whether an injunction should issue in the new year.
Debate Over How Federal Law Applies to Sports Outcomes
Kalshi, a New York-based operator, allows users to trade on predictions involving politics, economic indicators, entertainment, and—since January—sports competitions. The platform describes these products as event contracts overseen by the U.S. Commodity Futures Trading Commission (CFTC). Its legal team said that federal regulators hold exclusive authority over such instruments under the Dodd-Frank Act, which expanded the CFTC’s role in 2010. According to Kalshi’s lawyer Grant Mailand, state gaming rules, including those in Massachusetts, do not apply to its sports offerings.
The judge openly questioned whether the logic of federal oversight could naturally extend to something as simple as forecasting the winner of a football or basketball game. At one point, he remarked that “how can that carry over and impact something as trivial as who wins a particular game?” As reported by Reuters, his skepticism echoed the view of Assistant Attorney General Louisa Castrucci, who said that “A sports wager by any other name is still a sports wager.” She argued that the laws Congress crafted to prevent a financial crisis were never designed to supervise recreational activities that resemble gambling.
This line of inquiry built on broader questions raised in previous disputes between states and Kalshi. Courts have been asked to decide whether event contracts about game outcomes qualify as swaps under the Commodity Exchange Act (CEA). States maintain that the definition does not cover sports results because they lack a direct financial or commercial consequence. A federal judge in Nevada accepted that reasoning last month, concluding that while a contract tied to the occurrence of a sporting event might fall under the statute, a contract predicting who wins does not.
A Case Testing Preemption and How Broad It Can Become
The Massachusetts hearing also brought forward a newer angle: whether preemption can shift over time as markets evolve. Judge Barry-Smith questioned whether Congress’s intent in the 1970s or even in 2010 can be interpreted differently today, now that regulated sports betting is widespread across the country. He reflected on whether something that once appeared implausible or “absurd” could become less so as the industry changes. He described the issue as “whether a practice can grow into preemption,” noting that the answer is far from straightforward.
Mailand disagreed with the framing, saying that state gambling laws—including those governing sports—have long been preempted by the CEA. He pointed to decades of states attempting to treat futures trading as gambling and argued that the federal scheme was crafted to prevent such interference. He also referenced a “Special Rule” within the Act that allows the CFTC to determine whether certain gaming-related contracts should be blocked, emphasizing that Congress gave federal regulators a direct role even when products involve gaming elements.
During the hearing, the judge raised another potential boundary on swaps, citing a passage in the CFTC’s statute describing contracts that help manage price risks or transmit pricing information. He questioned how a sports contest fits within that framework. Kalshi responded that sports carry significant commercial implications and can involve hedging activity, even if many users trade for entertainment.
The judge indicated that any decision on an injunction would arrive after January. He plans to bring the parties together before issuing an order so they can prepare for next steps. If the state prevails, Kalshi would be barred from offering sports contracts in Massachusetts, a move the company says would be “massively disruptive to the market.” Kalshi only recently expanded into sports trading and has secured sizable investment, placing considerable financial weight behind the outcome of the case. The company is also facing related disputes in several other states.
For now, Massachusetts remains the only state seeking a court order to halt Kalshi’s operations outright, and the court’s eventual ruling may influence how other jurisdictions approach the intersection of prediction markets, federal authority, and sports gaming laws.
