Connecticut Takes Kalshi to Court in Escalating Fight Over Sports Prediction Markets

Connecticut has moved from regulatory warnings to a full court challenge against Kalshi, seeking to stop the prediction market operator from offering sports event contracts that state officials consider unlicensed sports betting.

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The lawsuit, announced Wednesday by Attorney General William Tong alongside Governor Ned Lamont and Consumer Protection Commissioner Bryan T. Cafferelli, asks a court to block Kalshi from continuing to offer the products to Connecticut residents.

The case adds another front to a widening legal war over prediction markets and a question that remains unsettled: when does a federally regulated event contract become a sports bet under state law?

A fight that started last year

Connecticut first targeted Kalshi’s sports contracts in December 2025. The Department of Consumer Protection ordered Kalshi, Robinhood and Crypto.com to stop offering or promoting the products in the state.

Regulators treated the contracts as unlicensed online gambling.

Their concerns went beyond licensing. Connecticut pointed to the state’s minimum sports betting age of 21, protections designed to prevent insider wagering, and technical standards that licensed sportsbook operators must meet.

The companies were told to halt the products while customers retained access to withdraw their funds.

Kalshi went to federal court the following day.

Its position has remained consistent. Kalshi operates a designated contract market under the supervision of the Commodity Futures Trading Commission, a status it received in 2020. The company argues that contracts traded on that federally regulated exchange fall under the Commodity Exchange Act and cannot be separately regulated as gambling by individual states.

Connecticut sees it differently.

State officials argue that putting a different legal structure around a wager does not change what consumers are doing when they risk money on the outcome of a sporting event. Connecticut legalized sports wagering in 2021, but only within a licensed system built around consumer safeguards and regulatory oversight.

Lamont has argued that prediction market operators should not be able to bypass that framework.

Kalshi has already lost an early court battle

The latest lawsuit comes after Kalshi failed to secure preliminary protection against Connecticut’s enforcement efforts.

Earlier this month, U.S. District Judge Vernon Oliver denied the company’s request for an injunction that would have temporarily prevented the state from applying its gambling laws while the broader federal case continued.

Kalshi has appealed that decision to the U.S. Court of Appeals for the Second Circuit.

The company’s litigation chief, Jovy Dedaj, responded to the new Connecticut lawsuit by accusing the state of inconsistent enforcement. Dedaj argued that other prediction market operators continued operating in Connecticut while Kalshi faced legal action, reinforcing the company’s view that federal supervision is needed to prevent uneven state-by-state enforcement.

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That argument has become central to Kalshi’s strategy across the country.

It has pursued similar federal preemption claims wherever state regulators have classified its sports contracts as gambling products. Courts, at least in several early decisions, have not accepted Kalshi’s requests for emergency protection.

A federal judge in New York rejected the company’s attempt to stop state enforcement in July. Judge Analisa Torres found that Kalshi had not shown, at that preliminary stage, that federal commodities law was likely to override New York’s authority. A later request for protection while the case was on appeal also failed.

Washington regulators secured another early victory that month. A state judge granted a preliminary injunction blocking Kalshi’s sports markets after finding that Washington was likely to succeed in its claim that the activity violated state gambling law.

The federal government is fighting states too

The dispute has grown beyond Kalshi’s own lawsuits.

In April, the CFTC and the Department of Justice sued Connecticut, Illinois and Arizona, challenging state efforts to regulate federally registered prediction markets. The federal government’s position is that contracts listed on CFTC-regulated exchanges fall within the Commodity Exchange Act and cannot be banned by state gaming authorities simply because they involve sports.

CFTC Chair Michael Selig has indicated that the agency intends to defend what it considers federal authority over those markets.

Connecticut is now fighting on both tracks. It is defending itself in the federal government’s case while separately pursuing Kalshi under state law.

The same legal issue sits underneath both disputes.

State regulators say the practical reality is straightforward: customers are putting money on sports outcomes, making the products functionally similar to sports wagers. Kalshi argues that the exchange-based structure of its contracts places them in a different legal category.

Courts have yet to deliver a final answer that settles the matter nationwide.

The conflict is spreading. More than a dozen states have become involved in enforcement actions, cease-and-desist orders or court disputes involving prediction market operators, including Kalshi and Polymarket.

Local authorities have also entered the fight. Earlier this month, Baltimore sued Kalshi and Polymarket over allegations that their sports event contracts amount to illegal gambling. The Baltimore action against Kalshi also named Coinbase, Robinhood and Webull, which have provided customers with access to prediction market products through partnerships or distribution arrangements.

For Kalshi, Connecticut is now another courtroom in a growing national battle over who gets to regulate betting on the future.

The company’s appeal remains before the Second Circuit. At the same time, Connecticut’s new lawsuit moves forward, while the federal government continues its separate challenge to the state’s authority.

For now, the industry’s biggest legal question remains unresolved: whether a sports contract traded on a federally regulated exchange is still, in the eyes of state law, a sports bet.

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Source: crypto.news