Massachusetts Court Signals Ban on Kalshi Sports Prediction Contracts in Landmark Regulatory Clash

Source: CryptoTale Original Title: Kalshi’s Massachusetts Case Tests Finance Vs Gambling Rules Original Link: Massachusetts is moving to block Kalshi’s sports prediction contracts, pushing a legal fight over market classification into state court. On Tuesday, Superior Court Justice Christopher Barry-Smith signaled a pending injunction against the platform’s sports offerings. The dispute centers on whether Kalshi’s event-based contracts fall under federal financial oversight or state gambling laws, and how those lines apply.

A State Court Challenge to Federal Market Oversight

The legal dispute occurred in Massachusetts Superior Court on Tuesday, when Justice Christopher Barry-Smith issued a preliminary ruling. He agreed with state regulators that Kalshi may violate Massachusetts sports-betting laws. Notably, he said the platform must obtain a state license to offer sports-related event contracts.

The judge indicated he plans to issue an injunction by the end of the week. However, he directed Massachusetts officials to avoid disrupting existing contracts. According to the ruling, the state must submit a proposed injunction by Wednesday. Kalshi then has until Friday to respond.

Barry-Smith wrote that requiring licensure serves the public interest. He added that Massachusetts law applies to any company offering sports wagering within the state. As a result, the court rejected arguments that Kalshi operates outside state authority.

The case comes from a lawsuit filed in September by Massachusetts Attorney General Andrea Campbell. She accused Kalshi of offering unlicensed sports wagering through its binary prediction contracts. Sports wagering in Massachusetts requires licensure and faces a 20% tax on mobile betting revenue.

Campbell welcomed the ruling in a public statement. She said companies must follow Massachusetts gambling rules without exception. She also cited public health risks tied to unregulated gambling activity.

Sports Contracts, Betting and Derivatives

Kalshi originally launched as a prediction market for economic indicators and world events. Over time, it expanded into sports-related contracts. Kalshi began offering sports markets in January 2025, according to court filings.

By May 2025, sports accounted for 70% of Kalshi’s revenue. That shift led to fast growth and broader platform visibility. However, it also drew attention from state regulators overseeing sports wagering.

Kalshi argued that federal law governs its operations. Specifically, the company said the Commodity Futures Trading Commission regulates its contracts. Therefore, it claimed Massachusetts lacked authority to block its sports markets.

Justice Barry-Smith rejected that position. He wrote that Congress would have clearly limited state authority if federal law required it. According to the ruling, Massachusetts retains the power to regulate sports wagering activity.

The judge also dismissed Kalshi’s claim that a ban would be financially ruinous. He noted the company expanded into regulated states despite enforcement warnings. According to the order, Kalshi chose to accept that regulatory risk.

If the injunction takes effect on Friday, it would mark the first state ban on prediction market sports contracts. Legal experts noted no prior U.S. ban exists on such contracts.

Licensing Dispute and Broader Regulatory Conflict

The Massachusetts case reflects a broader jurisdictional conflict over prediction markets. At issue is whether event-based contracts resemble financial derivatives or sports bets. That distinction determines whether federal or state regulators control oversight.

Massachusetts officials argue sports outcomes fall squarely under gambling law. Kalshi argues its contracts resemble financial instruments. The court, however, focused on licensing requirements rather than contract design.

The ruling signals renewed state enforcement over platforms blending trading and wagering. According to the court, licensing ensures compliance with existing consumer protections. It also allows tax enforcement under state law.

Kalshi continues to face legal pressure beyond Massachusetts. Several states require sports betting platforms to obtain licenses. Those requirements often conflict with federal commodity regulation claims.

Despite legal challenges, Kalshi remains well-capitalized. In October, the company raised $300 million in a Series D round. The funding valued Kalshi at $5 billion. Major venture capital firms led the raise, alongside other institutional investors.

The Massachusetts court set deadlines to finalize the injunction language. The process aims to pause new contracts without undoing existing ones. The decision places regulatory classification, not platform growth, at the center of the dispute.

The Massachusetts case brings federal and state authority into direct conflict over prediction markets. The court emphasized licensing requirements while rejecting exclusive federal oversight claims. As deadlines approach, the ruling frames how sports-based prediction contracts operate under U.S. law.