A hypothetical situation: You're pretty confident a certain baseball player is going to hit a home run in a game scheduled for later tonight. You access a website that allows you to place money on predicting he's going to get at least one dinger. If he does, you'll receive more money back. If he doesn't, you'll lose the money you fronted. Have you placed a sports bet on an online gambling site?
According to the online "prediction market" KalshiEX LLC (Kalshi) you haven't. Instead, you've just purchased an event contract. Event contracts are futures contracts that traders can purchase regarding a specific binary future event. For example, are you a real estate investor? You might want to purchase a futures contract predicting that a devastating hurricane will arrive before a certain date. If it does, you've covered your real estate losses. But event contracts now cover a wide range of events outside of traditional trading and investing, as demonstrated by Kalshi.
A lawsuit filed on September 12, 2025, indicates that the Commonwealth of Massachusetts strenuously disagrees with Kalshi's characterization of their services. Massachusetts Attorney General Andrea Joy Campbell accuses Kalshi of operating as a gambling entity without a state license and seeks to shut down its operations within the state.
The looming battle over a legal gray area took another twist on September 16 with the filing for an injunction to block Massachusetts' enforcement action by financial technology firm Robinhood, which is partnered with Kalshi. With the Trump administration relaxing regulations and taking a more hands-off approach to event contracts, this fight may boil down to determining how much control over prediction markets the states will have.
It's a Simple Yes or No Question
Before 2018, gamblers who wanted to bet on sports had to either trek to a Las Vegas sportsbook or take their chances with illegal wagers placed with a local bookie. That changed in May of that year when the U.S. Supreme Court (SCOTUS) struck down the federal ban on states being able to authorize sports betting. As of September 2025, online sports betting is legal in 30 states, the District of Columbia, and Puerto Rico. Seven of those states also allow online casino games for real money.
Sports are part of prediction markets, but they are far from the only options available. "Event contracts" can be about anything, from elections to financial markets to music and TV awards. Traders make a binary decision on a particular event contract, choosing either yes or no. Most are priced at a low value like $1, but there's no limit on how many times they can buy a particular contract. If they're right, they get paid. If not, they lose.
Some prediction markets are part of crypto apps or online brokerage accounts, while others, like Kalshi, are standalone platforms. While some focus on one type of betting, others include anything and everything. Markets either charge a small fee per contract or take a rake from profits.
It's easy to see how betting on the outcome of a future event sounds like gambling. Massachusetts sure thinks it does.
We Predict Motions Are Going To Be Filed
In the lawsuit, AG Campbell alleges that Kalshi's event contracts are just sports bets masquerading under a different name. Without a sports betting license from the state, the suit claims that taking these wagers is illegal. The Commonwealth also accuses Kalshi of accepting sports wagers from bettors under the legal wagering age of 21. It seeks to force Kalshi to stop facilitating sports-based event contracts, admit that they are a gambling entity operating without a license, and pay unspecified damages.
Kalshi is not exactly new to facing these allegations. Seven other states have issued the company cease-and-desist letters for what they also consider the illegal handling of sports bets under the veneer of event contracts. They were also squarely in the crosshairs of the Commodities Futures Trading Commission before the Committee on the Judiciary abruptly ordered the investigation halted in 2024.
It's also not the first time Robinhood and Massachusetts have crossed swords. The fintech firm's suit alleges that Massachusetts's attempt to regulate event contracts, which are not technically illegal at the federal level, violates the Supremacy Clause. The clash between federal and state jurisdiction may be yet another regulatory tussle destined for a date with SCOTUS. Some might even want to place a prediction on an event contract about it.
Related Resources
- Federal vs. State Courts: Key Differences (Litigation and Appeals)
- The Supremacy Clause and the Doctrine of Preemption (FindLaw's Legal System)
- What Is Gaming Law? (FindLaw's Learn About the Law)
