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A Massachusetts judge has ordered prediction market platform Kalshi to halt sports betting contracts in the state, ruling that the company must comply with local gambling laws despite its federal regulatory approval.
The injunction, issued by Suffolk County Superior Court Judge Christopher Barry-Smith, marks a significant victory for state regulators seeking to assert jurisdiction over federally approved prediction markets.
The decision places the Kalshi sports prediction market at the center of a broader national debate over how prediction markets should be regulated, who has jurisdiction over them, and whether federally regulated financial contracts can coexist with state-level gambling frameworks.
In issuing the injunction, Judge Barry-Smith said he intends to finalize an order requiring the Kalshi sports prediction market to comply with Massachusetts sports betting laws following a January 16 hearing.
While the judge is still considering whether to pause enforcement to allow an appeal, he emphasized that the state’s licensing regime exists to protect both the public and the Commonwealth’s financial interests.
“I agree that the injunctive relief ordered will be forward-looking only, which will minimize disruption but require Kalshi to begin complying with Massachusetts law,” — Christopher Barry-Smith, Judge, Suffolk County Superior Court, wrote in his ruling.
Barry-Smith added that enforcement action against non-compliant entities serves the public interest by ensuring equal oversight and fair competition across all sports betting operators in the state.
In his view, allowing the Kalshi sports prediction market to continue operating outside the licensing framework would undermine that system.
The judge also rejected Kalshi’s claim that compliance would cause undue hardship, noting that the company continued offering sports-related contracts even after receiving warnings about potential conflicts with state enforcement efforts.
Attorney General Campbell’s office has consistently argued that the Kalshi sports prediction market functions in practice like a traditional sportsbook.
In court filings, the state said Kalshi’s binary event contracts allow users to wager on the outcomes of amateur and professional sporting events, placing them squarely within the definition of sports betting under Massachusetts law.
Barry-Smith appeared to agree, stating that Kalshi knowingly operated in an area of direct conflict with state regulations.
He also pointed to Kalshi’s loss in a similar case in Nevada last November, where a federal judge found that the platform was subject to that state’s gaming laws.
In his reasoning, Barry-Smith rejected Kalshi’s argument that federal law was intended to displace state gambling authority.
Instead, he concluded that state gaming regulations can coexist with the Commodity Futures Trading Commission’s (CFTC) oversight of derivatives markets.
According to the ruling, Congress never expressed an intention to strip states of their long-standing power to regulate gambling activities within their borders, even where federally regulated financial instruments are involved.
That interpretation significantly weakens Kalshi’s position that the Kalshi sports prediction market should be exempt from state-level oversight.
Beyond jurisdictional questions, the court gave weight to the state’s arguments about consumer protection.
Court documents described design elements used by the Kalshi sports prediction market that allegedly borrow from gambling psychology to encourage impulsive behavior.
Barry-Smith cited allegations that Kalshi’s interface emphasizes potential rewards while downplaying risk.
Examples included the use of bright green fonts to display possible payouts and neutral colors for odds, a design choice regulators say can subtly encourage high-risk betting by signaling safety and success.
The judge said such mechanisms could increase public health risks associated with gambling, reinforcing the need for regulatory oversight.
These concerns, he concluded, support the state’s position that the Kalshi sports prediction market should not operate without proper licensure and supervision.
Kalshi, for its part, continues to argue that state gaming laws do not apply to its platform. The company maintains that its sports event contracts are federally regulated swaps under the exclusive jurisdiction of the CFTC and should be available nationwide under a uniform regulatory framework.
Responding to the Massachusetts action, a Kalshi spokesperson defended the platform’s model and criticized the state’s approach.
“Kalshi offers users a fair, transparent, federally regulated, and nationwide marketplace,” — Kalshi spokesperson, said in a public statement, adding that Massachusetts is relying on outdated laws to block innovation.
That argument has found limited traction in court so far. Barry-Smith described Kalshi’s view of federal preemption as overly broad and inconsistent with established principles of state authority over gambling.
The Massachusetts injunction represents one of the strongest state-level challenges yet to the Kalshi sports prediction market.
If upheld on appeal, it could encourage other states to pursue similar enforcement actions, particularly those with tightly regulated sports betting industries.
For policymakers, the case highlights unresolved tensions between financial innovation and consumer protection.
For crypto and prediction market investors, it introduces new regulatory risk that could shape the future availability of sports-based contracts in the United States.
As the legal battle continues, the Kalshi sports prediction market now faces a critical test: whether it can persuade higher courts that federal oversight should prevail, or whether it must adapt its business model to comply with a patchwork of state gambling laws.
Either outcome is likely to have lasting implications for the rapidly evolving prediction market sector.
