Kalshi sues Missouri as state preemption front widens

Catherine Hanaway sent cease-and-desist letters to Kalshi and other prediction market platforms in October, giving them until the sixteenth of that month to either stop operating in Missouri or obtain a state gaming license, pay applicable taxes, and restrict access to users under twenty-one. Kalshi's response was to file suit against the Missouri Gaming Commission and several state officials, arguing that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over swaps traded on designated contract markets and that Missouri's enforcement attempt runs directly into the Supremacy Clause.

Missouri's counter is straightforward: these contracts are bets, not swaps, and most federal courts that have looked at the question have agreed with that reading. Attorney General Hanaway's position is that the CEA does not preempt state gambling law in this area, and she has the weight of existing case law behind her when she says it.

This is where I think the consensus read goes wrong. The preemption argument is being treated as binary — either the CEA covers this entirely or it doesn't — but the litigation record suggests something more complicated. The Seventh Circuit has just agreed to hear Kalshi's appeal in the Ho-Chunk Nation case, where both the Ninth Circuit and a Wisconsin federal district court had already ruled that the Indian Gaming Regulatory Act applies to sports-event contracts on tribal lands, rejecting the UIGEA carveout argument Kalshi has been running. Two circuits, the same conclusion. A third will now weigh in. That is not a legal landscape trending toward Kalshi's position.

Meanwhile, the First Circuit has scheduled oral arguments in Robinhood Derivatives' appeal of the Massachusetts dismissal, though gaming attorney Daniel Wallach has noted that the threshold questions before that court are justiciability issues, not the preemption merits. What an appellate court finds interesting and what it decides are different things.

Kalshi is litigating simultaneously in Missouri, Louisiana, Utah — where criminal charges have been filed against the co-founders — and Wisconsin. That is not a legal strategy so much as a resource question. The company raised a billion dollars as the Utah charges landed, which suggests the capital runway exists to sustain the fight. But winning at the circuit level requires a circuit to actually adopt the preemption argument, and the existing precedent runs against it. I weight that more heavily than the fundraising number.

My bias runs toward the downside, and I note it here because I am adjusting for it. Even accounting for that adjustment, I think the market on a Kalshi preemption win at the federal appellate level is overpriced wherever it sits. The state enforcement actions are multiplying faster than favorable rulings, and Missouri is now in the queue with a gaming commission that has statutory authority and an attorney general who has already shown she will enforce it.