Kalshi Sues Iowa Preemptively in Escalating Prediction Market Fight

Kalshi has filed a preemptive federal lawsuit against Iowa officials, even though no enforcement action has yet been taken against the platform, marking the latest state to enter the escalating legal battle between prediction markets and state gambling regulators.

The complaint, filed March 11 in the U.S. District Court for the Southern District of Iowa, names Iowa Attorney General Brenna Bird and members of the Iowa Racing & Gaming Commission as defendants.

According to the filing, the suit “challenges the State of Iowa’s intrusion into the federal government’s exclusive authority to regulate derivatives trading on exchanges overseen by the Commodity Futures Trading Commission.”

Kalshi Launches Preemptive Legal Challenge

According to the complaint, Kalshi filed the lawsuit after a meeting with the Iowa Attorney General’s office led the company to believe there is a “substantial risk” that Bird or the gaming regulator will bring enforcement action against it.

The lawsuit claims that a meeting last week, thought to be an introductory discussion regarding prediction markets, turned into a legal interrogation over whether Kalshi’s contracts violate Iowa gambling law.

The filing states that a Kalshi representative:

“was greeted by a panel of attorneys, including Iowa’s Solicitor General, who proceeded to ask a series of pointed questions challenging whether Kalshi’s federally regulated offerings ran afoul of (preempted) Iowa state law.”

Kalshi said the meeting’s tone heightened concerns that enforcement action could follow.

According to the complaint, the Iowa Attorney General’s office later declined to provide assurances that enforcement would not occur. A state official told the company in writing: “We will not give any assurances about potential future enforcement.”

Kalshi argues that any attempt by Iowa to regulate its contracts would violate federal law. That’s because derivatives exchanges fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC).

The complaint states that the Commodity Exchange Act grants the CFTC “exclusive jurisdiction” over trading on federally regulated exchanges and that it preempts state regulation attempts.

Similar Strategy as in Utah

The Iowa lawsuit follows a similar preemptive complaint Kalshi filed against Utah officials last month.

In that case, Kalshi argued that public threats from Gov. Spencer Cox and Attorney General Derek Brown create an imminent risk of prosecution under the state’s anti-gambling laws, despite no official enforcement action.

Like the Iowa case, Kalshi argued that its contracts are federally regulated derivatives, not gambling products. Therefore, the company argued that they cannot be regulated under state betting laws.

Kalshi Points to Federal Wins — But States Are Gaining Ground

In its Iowa complaint, Kalshi points to federal court victories in support of its federal preemption argument.

The filing notes that courts in Tennessee and New Jersey issued preliminary injunctions that prevent the states from enforcing gambling laws against the company.

In Tennessee, a federal judge found that Kalshi is “likely to succeed on the merits because sports event contracts are ‘swaps’ and conflict preemption applies.” Similarly, in New Jersey, a federal court concluded that Kalshi’s sports-related contracts fall within the CFTC’s “exclusive jurisdiction.”

Recent Rulings Show Growing Split in Courts

However, those rulings represent a small fraction of the broader litigation landscape. Across federal and state lawsuits, states currently hold a significant advantage in court decisions.

Just a day before the Iowa lawsuit, a federal judge in Ohio denied Kalshi a preliminary injunction against state officials. In a direct split with the Tennessee ruling, the court concluded that sports event contracts are likely outside the definition of swaps under federal derivatives law.

Also, this week, a federal judge in Michigan denied Polymarket’s motion for a temporary restraining order against the state. The court expressed skepticism that sports-event contracts qualify as “swaps.” It noted that Polymarket offered little explanation for why the statutory definition should apply to wagers on sporting outcomes.

A federal judge in Maryland also ruled against Kalshi. However, the court did not issue a final determination on whether sports-event contracts qualify as swaps.

A federal judge in Nevada concluded that sports-event contracts likely fall outside the definition of swaps. That decision was one of five court victories for Nevada regulators against prediction market platforms.

At the state level, Massachusetts also scored a victory. A judge granted an injunction barring the operator from offering contracts tied to sporting events in the Bay State.

The overall record suggests that while prediction market platforms have secured early injunctions in a few jurisdictions, states are increasingly gaining ground.

So far, all three state-level lawsuits involving prediction markets have resulted in victories for state regulators.