Kalshi’s Legal Battle Escalates as Sports Betting Controversy Threatens Its Rapid Expansion

Kalshi faces mounting legal pressure as its sports betting operations draw regulatory scrutiny.

The expanding lawsuit could jeopardize the platform's ambitious growth trajectory.

Legal experts question whether prediction markets can navigate gambling regulations.

Another fintech darling discovering that compliance costs more than disruption promises.

Kalshi’s Market Makers and the Core Lawsuit Claims

At the heart of the lawsuit, plaintiffs say the company played both sides. They argue that Kalshi or its connected trading desks acted as market makers whenever bets shifted against the odds they preferred. This meant users unknowingly wagered against Kalshi or hedge-fund partners instead of other traders. According to the lawsuit, that structure mirrors how a sportsbook operates, not a regulated derivatives exchange. The plaintiffs also say that sports betting activity dominated the platform, making up roughly 90% of trading during certain months. They claim this volume shows Kalshi positioned itself less as a broad events exchange and more as a sports betting venue, even without proper licenses.

Kalshi Pushes Back as Sports Betting Scrutiny Grows

Kalshi strongly rejects the allegations. Co-founder Luana Lopes Lara has called the lawsuit “baseless” and said critics simply misunderstand how event contracts work. She explains that market makers help provide liquidity — a practice common in financial markets and already regulated under federal rules. She also insists these partners get no special treatment. However, pressure continues to grow. Native American tribal groups, state gambling officials, and multiple courts nationwide are examining whether prediction platforms like Kalshi are really operating sports betting products without permission. Because of this wider scrutiny, the company faces rising regulatory uncertainty.

Nevada Ruling Intensifies the Legal Stakes for Kalshi

Recently, a federal judge in Nevada delivered a significant blow to Kalshi’s position. The ruling allowed state regulators to continue enforcing gambling laws against its sports markets. According to the judge, contracts tied to touchdowns and player stats look more like prop bets than derivatives. Therefore, he ruled that these contracts fall outside the Commodity Futures Trading Commission’s exclusive jurisdiction. This opens the door for states to regulate or even shut down such markets. The decision immediately drew attention from investors. Shares of major sports betting companies like DraftKings and Flutter climbed as the ruling signaled tighter controls on prediction platforms. Kalshi has appealed the decision and asked for an emergency halt, warning it could face criminal charges if the order stays in place.

A Fast-Growing Business Now Surrounded by Lawsuit Risk

The timing of the lawsuit is striking. Kalshi recently announced major growth, including a valuation reportedly reaching $11 billion after a $1 billion funding round. Trading on the platform has also surged, hitting $50 billion in annualized volume. The company even launched a partnership with Coinbase to manage USDC settlement flows — a MOVE meant to strengthen trust and infrastructure. Yet rapid success often brings more scrutiny. Critics claim Kalshi is stretching the definition of derivatives to cover sports betting activities. At least five courts across the country are now weighing similar questions about prediction markets and gambling laws. While Polymarket, a major competitor, recently resolved its own regulatory challenges, Kalshi’s future remains uncertain. The next ruling could determine whether prediction markets expand as financial tools or face tighter restrictions as sports betting operations.