Kalshi Advances Alternative CEA Reading to Shield Sports Event Contracts from State Gambling Laws
TL;DR — Kalshi’s lawyer told a Rhode Island federal court that sports event contracts need not qualify as swaps to preempt state gambling laws under an alternative CEA reading. The argument centers on exclusive CFTC jurisdiction covering all agreements on designated markets. It arises amid Kalshi’s recent losses in New York, Wisconsin, and the Sixth Circuit.
SCCG Take — This novel CEA interpretation offers prediction markets a potential second path but judicial pushback on limiting principles reveals real enforcement risk. Client-partners must track whether courts prioritize text or congressional intent.
In a federal hearing Monday in the U.S. District Court for the District of Rhode Island, Kalshi‘s counsel argued that its sports event contracts do not need to qualify as swaps to gain immunity from state gambling laws. The prediction market, joined by Polymarket and the CFTC, faced the state after dueling May lawsuits. The argument rests on a fresh parsing of the Commodity Exchange Act‘s exclusive jurisdiction provision.
Kalshi lawyer Sindzak contended that the phrase “involving swaps” modifies only “transactions,” not the full list of accounts, agreements, and transactions on designated contract markets. This would mean CFTC-registered event contracts, as agreements on such markets, fall under federal oversight regardless of swap status. As reported by InGame, the approach could bypass courts’ skepticism toward the broad swap definition that requires dependence on an event with potential financial, economic, or commercial consequence.
Parsing the CEA Jurisdiction Language
Sindzak began by repeating preemption arguments Kalshi has used across states, noting Congress considered state gambling laws when granting the CFTC exclusive jurisdiction in 1974. She highlighted the CEA’s special rule for gaming contracts as further evidence of intended CFTC authority.
When the discussion turned to swaps, Sindzak deemphasized their necessity. “The question doesn’t force you to go through that, because it also mentions, ‘Agreements traded on designated contract markets,’” she said. “They don’t have to be swaps to fall under the CFTC’s jurisdiction.” Judge Mary S. McElroy asked whether Sindzak meant that trading on a DCM brings an instrument under CFTC jurisdiction even if it is not a swap. Sindzak replied, “I am saying that.”
Where the Risk Lies
McElroy remained unconvinced, calling the agreements definition circular and steering the hearing back to the swap question. She pressed for a limiting principle, questioning whether a high school football game or a sixth-grade coach buying ice cream for a winning team would qualify. Sindzak acknowledged some high school games might meet the definition but could be prohibited as against the public interest. She offered the color of the Gatorade shower for a Super Bowl-winning coach as an example too attenuated to count.
This argument arrives at an inflection point. Kalshi escaped a Minnesota ban but was sued by New York for $36 billion, lost a Wisconsin injunction, and met skepticism from a Sixth Circuit panel on complying with both state law and the CEA. The court’s focus on swaps signals this alternative reading faces an uphill path. For client-partners in this space, sustained litigation underscores the need to track how judges reconcile the CEA text with state authority over gambling. A structural shift toward federal clarity remains possible, yet only if this interpretation finds traction amid the current headwinds.
Reporting: InGame
Creative statutory parsing won't outrun judicial skepticism when courts smell unlimited expansion and no guardrails.
We've watched prediction markets chase federal cover for two years. Kalshi now argues that listing on a DCM alone triggers CFTC preemption, sidestepping the swap definition that's cost them in New York, Wisconsin, and the Sixth Circuit. If judges buy it, the landscape shifts overnight; if not, event contracts face state-by-state trench warfare.
- Kalshi claims DCM listing alone confers CFTC jurisdiction, no swap definition required
- Judge McElroy pushed back hard, demanding limiting principles Kalshi couldn't clearly provide
- Argument emerges after Kalshi's recent courtroom losses in multiple state preemption cases
SCCG angle: SCCG sits at the intersection of derivatives infrastructure and state regulatory strategy across every U.S. market. When statutory interpretation creates this much uncertainty, our partners need real-time intelligence on enforcement posture and backup licensing paths. We connect platforms to the lawyers, lobbyists, and state contacts who shape how these arguments land.