Connecticut Federal Court Denies Kalshi's PI — With a Novel Argument: Sports Event Contracts Are Not 'Swaps' at All
The U.S. District Court for the District of Connecticut has denied Kalshi's request for a preliminary injunction, allowing the state to enforce its gambling laws against prediction market sports contracts. Judge Vernon D. Oliver ruled that Kalshi's sports-event contracts do not satisfy the statutory definition of a 'swap' under the Commodity Exchange Act — because they depend on event outcomes, not on whether an event occurs. Kalshi has appealed to the Second Circuit, giving that court two simultaneous Kalshi appeals. Gaming law attorney Daniel Wallach says both Second Circuit cases could be consolidated for oral argument. The ruling creates a direct circuit conflict with a Third Circuit ruling from April that found Kalshi's contracts ARE swaps.
Judge Vernon D. Oliver of the U.S. District Court for the District of Connecticut has denied Kalshi's motion for a preliminary injunction, allowing Connecticut's Department of Consumer Protection to enforce state gambling laws against Kalshi's sports-event contracts. The ruling is the fifth judicial decision to go against Kalshi on PI motions in 2026, joining Michigan, Nevada, New York, and Washington — but it introduces a statutory interpretation argument that none of the other rulings relied on. Judge Oliver found that Kalshi's sports contracts do not satisfy the Commodity Exchange Act's definition of a 'swap' in the first place: 'Kalshi's sports-event contracts fail to satisfy this portion of the statutory definition of a swap because they do not depend on whether an underlying sporting event occurs, fails to occur, or occurs to a particular extent. Instead, Kalshi's sports-event contracts depend on the event's outcomes or discrete in-game occurrences.' The distinction is narrow but legally significant: a contract that pays out if a team wins is not the same as a contract that pays out if a game is played. The CEA definition of a swap, Oliver concluded, covers the latter but not the former — which would mean Kalshi's contracts are outside federal derivatives jurisdiction structurally, not just because of preemption doctrine.
The ruling creates a direct circuit conflict. In April, the Third Circuit ruled that Kalshi's sports event contracts ARE swaps under the CEA — the opposite conclusion on the same statutory question. A circuit split on whether prediction market sports contracts meet the CEA definition of a swap is the clearest possible pathway to Supreme Court review, since the resolution of the same federal statutory question cannot differ by geography. Gaming law and sports betting attorney Daniel Wallach noted that Kalshi is now involved in two separate Second Circuit appeals — the New York case from July 7, where Judge Analisa Torres also denied Kalshi's PI and ruled the CEA does not preempt New York gambling law, and the Connecticut case appealed this week. Wallach said both Second Circuit cases could be combined for purposes of oral argument, which would produce a single authoritative ruling on multiple grounds simultaneously. Traders on prediction market platforms are already pricing a 64% probability of Supreme Court review by the end of 2026.
The Connecticut background adds detail to the legal record. The state's Department of Consumer Protection Gaming Division issued cease-and-desist notices to Kalshi, Robinhood, and Crypto.com on December 2 for alleged unlicensed sports wagering — the same day that Polymarket's US platform (Polymarket QCEX) launched. Kalshi filed suit the following day, arguing its event contracts fall under CFTC oversight as a designated contract market licensee. Judge Oliver's ruling rejects that argument on two grounds: the contracts do not satisfy the CEA definition of a swap, and Congress did not displace Connecticut's authority to regulate sports betting. Oliver also pointed to Kalshi's own marketing, which described the platform as offering 'legal sports betting nationwide' despite sports wagering being traditionally regulated at the state level — citing Kalshi's own language as evidence that the products functioned as wagering regardless of their formal regulatory classification. A Kalshi spokesperson said the company 'disagrees with the Court's decision.'
The scale of state resistance has grown well beyond the eleven states in active litigation. At least 34 states and territories have filed amicus briefs backing state control over sports-event contracts, reflecting a broad political consensus that federal recognition of such contracts as swaps would significantly weaken local gambling regulation frameworks. The Connecticut ruling, combined with the existing losses in Michigan, Nevada, New York, and Washington, means Kalshi has now lost PI motions in all five jurisdictions where federal judges have ruled on the merits, with the sole win coming from Arizona in May — where Judge Liburdi applied a three-prong preemption analysis that no other court has followed. The NFL season begins in September, the CFTC's comment window on its proposed NPRM closed July 27, and the August 12 Michigan geofencing deadline arrives tomorrow. Against that backdrop, the Connecticut ruling adds a new and potentially more durable legal theory — the swap-definition argument — to the arsenal of states seeking to block prediction market sports contracts without relying solely on preemption doctrine.
Operators mentioned in this article
Recent updates
Kalshi's Parlays Drive Back-to-Back $5B Days — and Hand Critics Their Strongest Argument
Kalshi traded a record $5.33 billion on November 7 and $5.36 billion on November 8, with multi-leg parlay-style 'combos' making up roughly 75% of both days' volume. Its 30-day volume topped $100 billion. But the parlay dominance cuts against the platform's legal defense: parlays are a quintessential sportsbook product, and the American Gaming Association has told the Second Circuit that parlays make up about two-thirds of Kalshi's volume and should be treated as sports bets. The implied house edge on 10-plus-leg combos is around 25%, undercutting the argument that these are neutral financial instruments rather than gambling.
Cruz Bill Would Require State or Tribal Approval for Sports Contracts — a Bipartisan Legislative Threat Emerges
Senator Ted Cruz, who chairs the Senate Commerce Committee, is preparing a bill that would bar federally regulated prediction markets from offering gambling-tied event contracts, including sports, unless a state or tribal government authorizes them. It would not ban the contracts nationwide but would require platforms to obtain approval jurisdiction by jurisdiction, resembling state-by-state sportsbook regulation. The proposal arrives as Democrats take control of both chambers after the midterms, creating a potential bipartisan reckoning: a Republican committee chair and a newly skeptical Democratic majority both eyeing restrictions on a sector that had relied on federal protection.
CFTC Tells Platforms to Stop Geofencing States — Directly Colliding With State Court Orders
The CFTC issued an interpretation on November 5 of its 'impartial access' core principle, telling regulated exchanges including Kalshi and Polymarket to drop state-by-state geographic blocks within 30 days or explain why they cannot. The demand collides head-on with existing state court orders that require the platforms to geofence: Washington ordered Kalshi to geofence in August, and Michigan ordered it to use licensed geolocation to block the state in September, with a $500,000 daily fine for violations. Chairman Michael Selig framed the interpretation as a uniformity requirement. The platforms are now caught between a federal demand to unblock states and state court orders to block them.