If sports betting is banned in California, why is Kalshi allowed to operate here?
Sports betting is banned in California, even at tribal casinos. Yet online companies such as Kalshi and Polymarket offer customers in the state the opportunity to wager on the outcome of professional athletic events using a brokerage system that critics say is the equivalent of gambling.
Read more Store That Scorned Kelly Clarkson Shares 2nd Subtle Response to Her Claims
Is it legal? State and federal regulators disagree — as do courts across the country.
An adviser to one of the companies, who was not authorized to speak publicly, said prediction markets took off before regulations could be developed — but the industry eventually expected controls to be enacted.
“The plane is definitely being built while it’s in the air.”
We put together this primer to explain the issues.
Prediction markets grew out of the world of commodities trading. Just as a farmer could bet on the future value of a corn crop, and trade away the right to buy or sell it at that price, participants in prediction markets enter into contracts that they then buy or sell based on other sorts of events that might happen.
In recent years, Kalshi and other companies have set up exchanges, much like stock or commodities exchanges, allowing individuals to do their own trading. On these exchanges, traders buy and sell contracts that seek to predict the outcomes of elections, the arrival of storms or the results of athletic competitions.
Contracts based on the outcome of professional sporting events proved particularly popular. Heavily advertised on sports platforms, such bets or guesses make up 80% of Kalshi’s prediction business, or 60% of its total trading when crypto and commodities are included, the company said.
Sports betting is illegal in many states, including California. Yet with a few exceptions, most U.S. adults can register on Kalshi’s exchange via an app, and put money on the outcome of a game or match. Polymarket, Kalshi’s main competitor, is smaller and less focused on U.S. sports, but offers similar options.
The companies describe these actions as financial contracts, not gambling. They are regulated by the Commodity Futures Trading Commission, a nod to their roots in corn and pork bellies, and in this context their offerings are considered to be the financial products known as derivatives or “swaps.”
But numerous states, tribal gaming commissions and even the NFL disagree, saying the contracts are bets, and should be regulated by state governments under their gambling laws.
The result is a legal battle playing out in state and federal courts across the country.
More than a dozen states have gone to court, suing exchanges or the platforms on which they operate. But judges in different parts of the country have disagreed on whether Kalshi and its partners and competitors are doing anything wrong.
The question they are wrestling with is this: are prediction contracts on sporting events financial instruments, to be regulated by the CFTC at the federal level, or is all of this gambling, which is governed by the states?
In Michigan, a county circuit judge last month ordered Kalshi to make its sports betting functions inoperable in the state, writing that the company offered a “sports betting operation masquerading as an investment opportunity.” Judge Rosemarie Aquilina issued a preliminary injunction that included fines of $500,000 for each day the company failed to comply.
In California, the 9th Circuit Court of Appeals ruled against the company in two cases, one that affirmed the right of the state of Nevada to regulate its offerings as gambling and another that agreed with California tribes that the products amounted to sports betting.
Kalshi itself, the judges pointed out, had publicly referred to its products as sports betting in advertisements. In their ruling, the panel included a screenshot from a Kalshi ad that shows a football player preparing to make a pass with the headline, “Sports betting legal in all 50 states on Kalshi.”
But other courts have reached the opposite conclusion, ruling in favor of Kalshi and its digital brokerage partner, Robinhood.
After a panel of judges on the 3rd Circuit Court of Appeals in New Jersey ruled in the company’s favor, that state asked the U.S. Supreme Court to intervene. On Thursday, attorneys general for 39 states and the District of Columbia filed an amicus brief supporting New Jersey. The same day, the NFL filed its own brief, also supporting the right of states to regulate gambling, as did 145 Indian tribes.
Read more Emma Slater Addresses Awkward ‘DWTS’ Move Amid Scrutiny Over Low Show Scores
Kalshi has been ordered to file its own brief by Nov. 9, and the high court could weigh in as early as next year, said Robert DeNault, the company’s head of enforcement and legal counsel.
Trades on Kalshi differ from placing bets in a casino in a key way, said DeNault, because you are not wagering against the gambling company itself, known colloquially as “the house.” While betting against the house in a card game or at the roulette table may put a customer in the more vulnerable position, trading in prediction contracts involves individuals, not the powerful company, DeNault said.
The customers, he said, set the prices and enter into the contracts with each other, and people may withdraw from their positions if they wish to until the event draws near.
“Individuals are trading with one another, determining their own price, entering and exiting positions as they choose to, as they want to, and the only thing that the corporate entity with the license is doing is setting up a marketplace that’s regulated, open, fair, and impartial,” DeNault said.
To make a trade on Kalshi, participants must first register. Traders must upload documents proving their identity, and set up a brokerage account with funds in it. Once on the platform, contracts with a face value of $1 are available on a variety of topics. In the case of a sports match, a contract on a team favored to win by 50% of participants might cost 50 cents. Someone who wanted to bet $50 on that team could buy 100 contracts, as long as they could find enough other people to take 100 contracts on the opposite position, DeNault said.
Two California tribes, Blue Lake Rancheria and Chicken Ranch Rancheria, sued to stop Kalshi from operating its sports business in the state. Their attorney, Lester Marston, said the prediction market bets on sports were affecting the tribes’ income, as customers spent chunks of their gambling budgets on the digital exchanges rather than at the casinos. A Wisconsin tribe also represented by Marston expects prediction markets to cut into its annual revenues by up to $10 million, he said.
By offering their sports products, Kalshi and Polymarket are violating state and tribal sovereignty, the California Nations Indian Gaming Association said last month.
“Like the prospectors of old, Kalshi and its ilk are infringing tribal sovereignty and threatening a vital tribal resource,” a coalition of 145 tribes wrote in their amicus brief to the Supreme Court in the New Jersey case. Gaming is critical to the tribes’ ability to sustain themselves, and allowing Kalshi to operate without tribal or state oversight would have devastating consequences, the tribes wrote.
Yet in a sign of how quickly these markets are developing, three California tribes said this week that they were partnering with Kalshi, developing their own apps and brands to be used on the platform.
Their remote locations have prevented them from the benefits that casinos and other development has brought to other tribes, making a deal with Kalshi more attractive, the tribes said.
“For tribes like ours, geography has always limited traditional economic development,” said Eric Wright, CEO of the Kletsel Dehe Wintun Nation, of Colusa County. “The digital commodities marketplace gives us an opportunity to build beyond those limits.”
Californians voted down sports betting in 2022, despite strong support from some tribes. Marston said that means Kalshi’s platform is illegal, and the company and its competitors should be blocked from online access for sports contracts in the state. He called on Attorney General Rob Bonta to bring a criminal prosecution against prediction markets operating here.
Bonta has not gone that far. But the attorney general has joined amicus briefs in eight lawsuits against Kalshi and prediction markets, including the one at the Supreme Court.
“Our office strongly believes that states have the legal right to regulate and enforce against sports prediction markets,” spokesperson Alexandra Veitschegger said in an email to The Bee.
Their future here — and elsewhere — will most likely be determined by the Supreme Court.
This story was originally published October 11, 2026 at 8:00 AM with the headline “If sports betting is banned in California, why is Kalshi allowed to operate here?.”
Read more UNC nabs first ranked win under Belichick. Observations from victory at Pitt
