Are prediction markets unlicensed sports betting? Massachusetts says they are. In what could have a dramatic impact on the future of prediction markets, the Massachusetts Attorney General sued Kalshi in Suffolk Superior Court on September 12 and issued a press release announcing the action. This action marks the first time a state regulator has initiated litigation against a prediction market in its own courts, rather than defending against a declaratory action from a market operator.
The Massachusetts Attorney General’s complaint alleges that Kalshi’s football and player prop contracts are sports wagers requiring a Massachusetts license. To support that position, the attorney general points to similarities with traditional sportsbook offerings, arguing that the contracts function like familiar betting products rather than regulated derivatives. The attorney general seeks monetary relief, a permanent injunction, and an emergency order halting Kalshi’s operations through what it considers to be one of the state’s “core police powers.”
The complaint also highlights the role of Robinhood, which Massachusetts alleges facilitated nearly $1 billion in Kalshi wagers in the second quarter of 2025. Not loving the characterization of its platform as a facilitator of illegal gambling, Robinhood followed the Mass AG action by filing its own federal complaint in the District of Massachusetts, arguing that the Commodity Exchange Act (“CEA”) gives the Commodity Futures Trading Commission (“CFTC”) exclusive authority over contracts traded on a designated exchange. Robinhood contends that Massachusetts’ attempt to regulate these contracts intrudes on federal jurisdiction.
Together, these cases raise the central question: who determines whether event contracts are treated as derivatives under federal law or as gambling under state law?
A National Litigation Patchwork
Massachusetts’ lawsuit lands in the middle of an already divided legal landscape. Earlier this year, federal courts in New Jersey and Nevada granted preliminary injunctions preventing regulators in those states from applying gambling laws to Kalshi’s contracts. By contrast, a Maryland federal court denied similar relief, siding with the state and holding that its gaming laws could apply. Appeals from the New Jersey and Maryland cases are now pending in the Third and Fourth Circuit Courts of Appeals, while Nevada is proceeding to discovery for an eventual decision on the merits.
By going directly to state court, Massachusetts has pursued a different approach. Rather than waiting for a federal preemption challenge, the attorney general is pressing its case under state law and forcing Kalshi and Robinhood to defend in multiple venues. The result is a patchwork of litigation across jurisdictions, with courts and regulators reaching inconsistent results. Until appellate courts resolve these differences, companies face significant uncertainty about how event contracts will be classified and who will regulate them.
Political, Tribal, and Industry Pressure
The litigation comes against a backdrop of increasing political and industry attention. Earlier this year, more than 30 state attorneys general joined an amicus brief in the New Jersey case, propounding the view that states retain broad authority over gambling even when products are listed on federally regulated exchanges.
This sentiment was echoed by several gaming associations, industry groups, tribal governments, professional sports leagues, scholars, and state and federal legislators in comments submitted to the CFTC’s proposed “Prediction Markets Roundtable” that was scheduled (and subsequently canceled) earlier this year.
In addition to their advocacy to the CFTC, a number of California tribes have sued Kalshi and Robinhood, arguing that event contracts offered without state licensure raise questions under the Indian Gaming Regulatory Act (“IGRA”) and potentially affect the scope of tribal gaming rights.
Public opinion tends to be on the tribes and State AG’s side. According to polling from the American Gaming Association, most voters view event contracts as gambling and believe they should be regulated like sportsbooks. For policymakers, these perceptions may influence how aggressively they act.
Sports leagues are also voicing similar concerns. Major League Baseball has opposed certain types of proposition bets, such as wagers on the first pitch of a game. The NBA, NFL, and NCAA have similarly expressed that the nature of event contracts and player-specific props raise integrity risks and may increase pressure on athletes. While leagues cannot directly regulate event contracts, their perspectives often carry weight in legislative and regulatory discussions. The leagues also prevent league broadcast rights licensees from accepting advertisements from these market participants during league broadcasts.
Meanwhile, market expansion continues. Kalshi recently rolled out an array of football player prop contracts nationwide, and fintech and fantasy platforms are increasingly seen as potential distribution partners. This simultaneous growth and scrutiny reflect the unsettled place of event contracts in the broader gaming and financial ecosystem.
Building on the Debate
At ZwillGen, we have been following these developments closely. In “A Level Playing Field,” we discussed the various legal and policy considerations underlying sports event contracts. In “Betting on Regulation: The CFTC’s High Stakes Debate on Prediction Markets,” we examined the CFTC’s evolving posture in this area. And in “Are Election Futures Contracts Gaming?,” we noted that the debate extends beyond sports into elections and other domains.
The Massachusetts lawsuit demonstrates that these debates are moving quickly from theory to practice. State regulators are testing their authority directly, while companies are seeking federal forums to defend their positions. The outcomes will determine whether event contracts are primarily treated as federally regulated derivatives, state-controlled wagers, or some hybrid approach.
Looking Ahead
For gaming companies, whether those already offering sportsbooks or considering entry into event contracts, these cases illustrate the unsettled regulatory environment. The litigation in Massachusetts and Nevada and appeals in the Third and Fourth Circuits will help determine how event contracts are classified and who has authority to regulate them.
Until then, companies involved in sports events contract offerings can expect continued attention from regulators, tribes, leagues, and the public. Massachusetts’ move suggests that states may be willing to act more aggressively, and the next year of litigation will be critical in shaping the path forward.
