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- Former CFPB adviser Brad Lipton argued that Kalshi’s heavy push into sports-focused prediction contracts undermines its legal defense that these products should be regulated exclusively as federal commodities rather than state-level gambling.
- The legal fight over prediction market preemption could soon reach the Supreme Court following a split between the Third and Ninth Circuits, with New Jersey and Robinhood both filing separate petitions in September.
Kalshi’s push deeper into sports prediction markets is weakening its argument that federal law blocks states from treating its products as gambling, according to former Consumer Financial Protection Bureau adviser Brad Lipton.
The comments land as the legal fight over Kalshi’s sports contracts reaches a more consequential stage. A split between the Third Circuit and Ninth Circuit, plus separate Supreme Court petitions from New Jersey and Robinhood Markets Inc., could help decide whether prediction market operators can avoid the licensing, taxes and consumer protections that apply to sportsbooks at the state level.
Sports now dominate Kalshi’s business
Lipton, now the Roosevelt Institute’s director for corporate power and financial regulation, told Yahoo Finance that Kalshi’s sports push “really undermines the argument” that its contracts should be viewed chiefly as financial instruments rather than bets.
According to the Ninth Circuit, Kalshi marketed itself as “the first app for legal sports betting in all 50 states.” The court also said sports made up more than 90% of Kalshi’s 2025 trades and 95% of its revenue.
That matters because Kalshi’s core legal position is that its contracts are governed by federal commodities law, meaning state gambling rules should not apply. Lipton argued that the more the product resembles retail sports wagering, the harder that position becomes to sustain.
He said a market built around sophisticated firms hedging financial risks would present a different case than “some guy on his couch placing a bet.”
Circuit split raises stakes for operators and states
The current legal landscape is split. The Third Circuit backed Kalshi against New Jersey in April, while the Ninth Circuit in August allowed Nevada to apply its gambling laws to Kalshi’s sports contracts. Kalshi has since asked the Ninth Circuit to reconsider.
New Jersey petitioned the Supreme Court on Sept. 2, and Robinhood filed a separate petition on Sept. 10 over the same Nevada regulatory issue. Lipton said there is a “pretty good chance” the high court takes up a case because of the circuit split and the Trump administration’s interest.
The article also says the Trump administration’s CFTC has sued multiple states over efforts to apply gambling laws to federally regulated prediction markets.
What to watch next
If courts ultimately side with states, prediction markets may still be able to operate, but not under the same national model they have argued for.
Lipton said a state-by-state compliance approach could preserve the business in some form, but operators “would have to change their business model a lot” and do so “in a fundamental way.”
The next key developments are whether the Ninth Circuit changes course on rehearing and whether the Supreme Court agrees to hear either pending petition. Those decisions could shape how far state gambling regulators can go in policing sports-focused prediction markets across the U.S.
Source: As reported by Daragh Thomas.
