Kalshi faces state courts over illegal gambling claims

Kalshi may soon be at the center of the conversation, as stock markets reached all-time highs last week, though the surge may be short-lived due to growing inflation and an impending legal dispute over prediction platforms.

The S&P 500 and the Nasdaq Composite both climbed to record levels in recent days, fueled largely by investor excitement over the potential earnings boom from artificial intelligence. The Dow Jones Industrial Average lagged behind but remains close to its own record.

Still, economists and traders are watching one number very closely right now: inflation. And what they are seeing is not encouraging.

On April 10, the Bureau of Labor Statistics reported that inflation rose 3.3% over the past 12 months.

A Cleveland Fed forecasting tool has since pushed its April estimate even higher,  from 3.28% to 3.58%.

A rate that high would give the Federal Open Market Committee no reason to cut interest rates, and could even pressure them to raise rates instead, which would be bad news for stocks.

Courts weigh in on prediction market legality

As this inflation-driven turbulence builds, a major legal fight over prediction markets is accelerating toward the Supreme Court.

Platforms like Kalshi and Polymarket let users trade contracts on real-world outcomes, from inflation readings and Federal Reserve rate decisions to election results and geopolitical events.

People’s ability to utilize these platforms to hedge against the very kinds of economic and policy risks currently shaking traditional markets, as well as to speculate, may be determined by the impending high-court case.

Prediction markets have marketed themselves as tools for predicting actual events. However, a closer examination of their business reveals another issue.

Sports bets accounted for almost 85% of all wagers on Kalshi, according to recent sources. The site received $25 million in fees from March Madness betting alone in a single four-day period.

That has drawn sharp pushback from state governments and Native American tribes, who argue Kalshi is running an illegal gambling operation without proper licensing.

Courts in at least three states have sided with that view. Others have ruled in Kalshi’s favor, finding that its sports contracts fall under a category of financial instruments permitted by federal law.

One dissenting judge, U.S. Circuit Judge Jane Roth, was direct in her view. “Basic abductive reasoning tells us that if it looks like gambling, talks like gambling, and calls itself gambling, it’s gambling,” she wrote, backing the New Jersey Division of Gaming Enforcement’s position.

The majority of the court disagreed, arguing that even if the bets resemble gambling, they are technically classified as “event contracts,” a type of swap under federal law, which means federal rules take priority over state ones under the legal principle known as pre-emption.

If the two courts land on conflicting rulings, the split would likely push the case to the Supreme Court as early as next year. Legal experts say the outcome is genuinely hard to predict.

Kalshi will need to work around the Supreme Court’s 2018 decision in Murphy v. NCAA, which stripped the federal government of its sole authority over sports betting, as well as the 2024 Loper Bright ruling, which said courts do not have to defer to the judgment of federal agencies.

Traders turn to prediction markets for real-world risk

Beyond sports betting, prediction markets are gaining traction as hedging tools amid rising inflation and policy uncertainty.

Traders are increasingly using contracts on CPI readings, Fed rate decisions, and inflation trajectories to manage the very volatility now shaking traditional markets.

If the Supreme Court rules in favor of broader access to event contracts, these platforms could become a legitimate complement to the $60 trillion commodities market, offering a direct way to hedge inflation risk, interest rates, and election-driven shocks.

For now, Kalshi’s legal fate remains uncertain, and there are still no contracts on the platform that let users bet on its own Supreme Court outcome.

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