Kalshi Lawsuit Pits States Against Trump Family's Corruption Machine

The Ninth Circuit ruled 3-0 against Kalshi on Friday, holding that states have authority to regulate the prediction market. In doing so it handed roughly twenty state attorneys general the legal footing they have been asking for since these platforms went mainstream.

The question underneath

The core dispute is about who supervises this industry at all, and it turns on a definitional question with billions attached to it. Kalshi and Polymarket operate under the Commodity Futures Trading Commission, on the theory that a contract on an election result or a football game is a financial instrument rather than a bet.

That theory has always been load-bearing. If these are financial instruments, they are federally regulated and states have nothing to say. If they are bets, then every state gambling regulator in the country has jurisdiction, along with every state gambling tax, every responsible-gambling requirement, and every restriction on who may participate.

The regulator that isn't there

The federal supervision being invoked is, at present, largely notional. The CFTC is designed to operate with five commissioners. It currently has one, Michael Selig.

In July, 44 state attorneys general sent a joint letter making the obvious point: the agency cited as the reason states should stay out of this is not, in any functional sense, regulating it. That is a strong argument in front of judges, because preemption doctrine generally assumes the federal regulator is actually regulating. An empty chair is difficult to defer to.

Who is on the payroll

The money explains the intensity on both sides. States estimate the industry avoids roughly $2 billion annually in taxes by not being classified as gambling — real revenue, in budgets that are not otherwise flush.

And both companies employ Donald Trump Jr. as a strategic advisor. That arrangement does not prove anything about any particular regulatory decision, and it does not have to. It is the kind of fact that makes a light-touch federal posture look less like a considered judgment about market structure and more like a service being rendered, and no amount of technical argument about swap contracts will dislodge that impression.

Headed upstairs

The Third Circuit ruled the other way in April, in Kalshi's favor. There is now a clean split between federal circuits on a question worth billions of dollars a year, which is the standard route to the Supreme Court and very likely the route this takes.

Which means the definitive answer to whether betting on an election is gambling will be delivered by the one institution with the least obligation to explain how it reached the conclusion — in a case where one of the parties employs the president's son, before a Court whose members were substantially appointed by the president. Whatever the ruling says, the reasoning is going to be read for what it does not address.