Kalshi loses two appeals court rulings on state enforcement

Jason Robins chose a phrase carefully in his earnings call. He called the third quarter a "pivotal moment" — meaning the losses were worth it, the prediction market buildout was proceeding as planned, and DraftKings had decided to absorb the pain now to own the category later. What he did not say, and what the week's court record suggests, is that the category itself is becoming harder to own.

Kalshi suffered two appeals court setbacks on state enforcement, according to Focus Gaming News. The decisions are not yet fully detailed in what I have in front of me, but the pattern they extend is legible: the federal preemption argument that Kalshi has built its expansion strategy around is not performing the way the company needed it to in appellate courts. When a legal theory loses at the trial level, you appeal. When it loses at the appeals level, you have a structural problem.

This is where the DraftKings numbers become more interesting than they first appear. The company has committed between $650 million and $700 million to its Predictions business in 2026 alone, with another $250 million to $350 million flagged for 2027. CFO Alan Ellingson described the core business as generating the free cash flow that funds this expansion. That framing is disciplined — it means the prediction market bet does not require external capital to survive a bad quarter. What it does require is a legal environment that allows the product to operate in enough states to justify the spend.

I should flag my own tendency here: I weight downside scenarios more heavily than the base case usually warrants, and I am adjusting for that as I write. The bearish read on DraftKings is that it has committed irreversibly to a business whose regulatory foundation is eroding in real time. The more probable read, and the one I think the market is underpricing in the other direction, is that DraftKings has enough state-licensed infrastructure to operate Predictions through a period of legal turbulence that would destroy a company without that base. Kalshi does not have licensed sportsbook relationships in 27 states. DraftKings does.

The seam I keep returning to is this: the prediction market legal fight has been framed, mostly, as a Kalshi story. Kalshi's founders facing criminal counts in Utah, Kalshi's subpoena fight with New York, Kalshi's preemption argument in federal court. That framing is accurate but incomplete. The appellate setbacks this week apply to Kalshi's theory, and DraftKings has implicitly licensed that same theory by entering the space under CFTC event contract registration. If the federal preemption argument continues to lose at the appeals level, every platform that entered prediction markets on the assumption that federal designation overrides state authority is holding the same exposure — just with very different balance sheets behind it.

DraftKings' 2027 revenue target for Predictions is $650 million to $750 million. That number requires scale across states, and scale across states requires a legal argument that is currently losing in appellate courts.