An Iowa federal judge has denied Kalshi‘s request to prevent the state from regulating its sports-related event contracts under Iowa gambling law, dealing a setback to the prediction market operator’s argument that federal commodities law pre-empts state regulation.
U.S. District Judge Stephen Locher denied Kalshi’s motion for a preliminary injunction, finding that the company was unlikely to succeed on its claim that the Commodity Exchange Act expressly pre-empts Iowa gambling laws.
Kalshi filed a pre-enforcement lawsuit in March after a meeting with staff for Iowa Attorney General Brenna Bird led the company to believe the state might take action against its business. Iowa had not taken enforcement action against Kalshi when the lawsuit was filed.
Kalshi’s pre-emption argument relied on what it described as the Commodity Exchange Act’s “express preemption clause.” Locher rejected the argument, saying Congress would have needed to be clear if it intended to pre-empt state gambling laws.
“If Congress intended to pre-empt state gambling laws when it enacted and amended the Commodity Exchange Act, it should have been clear about that pre-emption,” Locher wrote. “The text of the Commodity Exchange Act does not meet the mark.”
Locher said the CFTC‘s “exclusive jurisdiction” extends only to the regulation of “swaps or contracts of sale of a commodity for future delivery.” He noted that the statutory definition of a swap does not specifically reference sports betting.
“In context, it is easy to conclude that the word ‘event’ or ‘occurrence’ covers events in financial or asset markets like changes in interest rates or grain prices,” Locher wrote.
“It is harder to conclude that Congress intended for ‘event’ or ‘occurrence’ to encompass the outcome of a sporting event. In general parlance, one would not describe, say, the Minnesota Vikings winning a football game as an ‘occurrence’ or ‘event.’ Instead, the game itself would be the ‘occurrence’ or ‘event,’ with the final score being the ‘result’ or ‘outcome.’”
The judge also said the exclusive-jurisdiction provision could have been intended to identify the CFTC as the lead federal regulator over certain contract markets rather than to pre-empt state regulation.
“Even if those factors were considered, however, the result would not change. Kalshi should have known all along that its sports-related event contracts might be interpreted by state regulators as sports gambling; indeed, the company has characterized itself in an advertisement as ‘the first app for legal sports betting in all 50 states,’” Locher wrote.
“Nonetheless, Kalshi charged ahead with its business without, apparently, making any effort to learn whether the Iowa Attorney General or [the Iowa Racing and Gaming Commission] viewed the company’s sports-related event contracts as illegal gambling,” he continued.
“To the extent it would be expensive in these circumstances for Kalshi to deploy new technology or change aspects of its business to ensure compliance with Iowa law, this is a problem of the company’s own making. It should have proceeded with greater caution.”
Iowa Attorney General Brenna Bird praised the ruling.
“This ruling is a victory for the rule of law and for protecting Iowans,” Bird said. “Out-of-state betting platforms cannot simply invent a loophole to ignore state law and turn financial markets into unregulated online casinos. Kalshi sued Iowa trying to prove they could ignore Iowa’s laws. The court said they were wrong. Anyone offering sports betting in Iowa now knows they must play by the same rules.”
The ruling allows Iowa to continue regulating Kalshi while the broader case proceeds. The case does not resolve whether Iowa will ultimately take enforcement action, whether Kalshi will appeal, or how the court will rule on the company’s full claims.
